Gold’s pullback creates attractive entry as de-dollarization turns structural - KMLM’s Prior
Gold’s recent correction has created an attractive entry point for investors, even as short-term headwinds continue to pressure prices, according to one portfolio manager.
In an interview with Kitco News, Jerry Prior, chief operating officer and senior portfolio manager at the KraneShares Mount Lucas Managed Futures Index Strategy ETF (NYSE: KMLM), said that the factors driving gold’s long-term bull market remain firmly intact, particularly the growing global shift away from the U.S. dollar as the dominant reserve asset.
“I think, given the repricing of gold here, it’s probably a pretty good entry point,” Prior said in an interview with Kitco News. “There’s a long-term de-dollarization theme that is structural, and I think it will be persistent.”
Gold has faced significant selling pressure in recent weeks as traders responded to a more hawkish policy stance from Federal Reserve Chair Kevin Warsh and easing concerns surrounding the Middle East conflict. Prior noted that speculative investors, sovereign buyers, and systematic trend-following funds all contributed to the recent decline. He added that, given the extreme shift in speculative positioning, much of the downside has already been priced into the market.
“Maybe prices go below $4,000 an ounce, but once the oil starts flowing again, we’re going to see some sovereign buying of gold as central banks rebuild their reserves,” he said.
Prior said that one of the most important developments in the gold market over the past several years has been the growing desire among countries to diversify reserves away from U.S. dollar-denominated assets. He described the “weaponization of the dollar” as a major catalyst behind central-bank gold buying and said that trend is unlikely to reverse.
“We think a lot of the gold move is explained that way,” he said. “Countries are looking for a store of value outside of the U.S. dollar and the U.S. Treasury market. If countries are producing more oil and income starts flowing again, we don’t see that capital going into the Treasury market. We see it going back into the gold market.”
While Prior remains constructive on gold, he acknowledged that investors could face additional volatility in the near term. A sustained rise in interest rates and successfully anchored inflation expectations could temporarily weigh on the metal. He also noted that gold does not always perform well during periods of elevated inflation, particularly when higher rates increase the opportunity cost of holding non-yielding assets.
However, he said investors should focus on the bigger structural themes rather than short-term interest rate fluctuations.
“Gold is a defensive asset within a portfolio,” he said. “The retail flow that was going into gold has largely been cleaned up, so you probably won’t get stuck in a panic sell at this point.”
Prior added that the broader macroeconomic backdrop continues to support strategic allocations to gold. He expects inflation to remain structurally higher than pre-pandemic levels as reshoring and supply-chain realignment reverse decades of globalization-driven disinflation.
He explained that, before the pandemic, cheap imports from China helped suppress inflation across developed economies. That dynamic is now changing, he said, making it less likely that inflation returns to the consistently low levels seen over the past two decades.
Against that backdrop, he said gold’s recent correction appears less like the start of a prolonged bear market and more like a reset within a larger secular uptrend.
Looking toward year-end, Prior said he sees gold climbing to roughly $4,500 an ounce as central-bank demand re-emerges and the structural de-dollarization trend continues to support investment flows into the precious metal.
“I think the structural de-dollarization theme, plus increased oil production in the Middle East, is going to bring buyers back,” he said. “I think gold melts up from here.”
