“Gold is absolutely, in my opinion, has to be a core part of holdings,” Sanger said, adding that his firm has increased exposure to gold and gold equities. His outlook comes as US bond markets remain under pressure from heavy Treasury issuance and concerns over the country’s fiscal position.
Sanger said the US bond market is struggling to absorb the scale of government borrowing, with investors demanding higher yields. “The bond market is having a hard time digesting the amount of issuance that is being done by the US Treasury,” he said.
On India, he said rising prices of refined petroleum products and a weak monsoon could add to inflationary pressures despite healthy earnings growth. “I’m constructive, but I’m cautiously constructive because of these two macro factors that could be a bit of a headwind short term,” he said.
This is an edited transcript of the interview.
Q: What’s the US bond market telling us, and how concerned should an Indian investor, or an equity market investor, be about what’s happening in the US bond market?
A: First of all, what’s happening in the US bond market is that the bond market is having a hard time digesting the amount of issuance that is being done by the US Treasury, and with the major central banks around the world not participating in a meaningful way, this has become more dependent on financial-type hedge funds and others to finance it. And the reality is that hedge funds and others are looking for higher yields to compensate for this. So, interest rates or the yields have been climbing, so the cost of borrowing is going up.
And I think the one-day relief rally when the US announced buying the long end didn’t last very long, and despite Secretary Scott Bessent’s talk about doing even more, the reality is everybody knows that the deficit is still high. And if they’re buying the long end, that just means they’re issuing even more on the short end.
So, people are saying, “Show me the money. Show me what Bessent is saying,” which is, “we doubt that the deficit is going down. We’ll wait and see”. If it turns out to be true, then maybe yields settle back down, but if it doesn’t, then yields are going to keep climbing.
Q: These things typically settle down, right? Sometimes you have flare-ups, but we can point to so many instances in the past where it looked like this was it, the moment of reckoning, and then it wasn’t. It’s usually not, right?
A: It’s usually not, but if you look at the reaction of gold and Bitcoin, what you will see is that people are now recognising that if the US is practising what is sometimes being called financial repression by trying to artificially influence the market to keep rates from going up, which is understandable because it doesn’t want to maximise its borrowing costs. The reality is you can squeeze a balloon in one place, but something else is going to bulge.
And what you’re seeing is people realising that maybe with oil going up, there doesn’t seem to be anything structural that is going to keep oil prices down as long as the standoff between Iran and the US continues. So, you’ve got that as an inflation tailwind, notwithstanding the benign July data. Inflation is headed higher, the deficit doesn’t look like it’s coming down, and if the US government is pumping money at the long end, then it’s time to buy non-dollar assets like gold and hard assets. And, frankly, emerging markets should benefit from the US printing money to buy the long end of the curve.
Q: What’s the view now that the India earnings season is done? A pretty good showing, but, on the other hand, crude prices are much higher than where they were three months back.
A: It is that old dialogue about liquid oxygen. You don’t know whether it’s going to kill you or make you stronger, but the reality is that India has two problems. One is the rise in, not just oil prices. I like to remind people that diesel in the US right now is over $190 a barrel. It’s a little bit less in Asia, but not that much less. Gasoline is over $160. So, you don’t consume crude; you consume refined products as a business and as a consumer, and those are extremely high. And oil is going to keep going up, and, of course, those refined products are telling you that things are extremely tight. So that’s one problem for India.
The second problem is that the monsoon has been deficient, and it looks like there’s a strong El Niño towards the end of the monsoon, which could cause it to stay deficient, which means that you have inflationary forces that are going to be a bit of a headwind.
But like you said, this was a great earnings season, and it was one of those where the midcaps and the smallcaps did even better than the large-caps in terms of earnings growth.
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So, you’ve got these two competing forces, and just as things were starting to look very rosy on the bottom-up earnings growth story for India, you’ve got these two flies in the ointment. So, I’m constructive, but I’m cautiously constructive because of these two macro factors that could be a bit of a short-term headwind.
Q: By the way, you mentioned gold briefly. Do you think now’s the time to accumulate gold?
A: I have not been a gold bug in my career, but there have been three major catalysts for gold, and this was the fourth one. The first one was the Russian Treasuries being frozen by the US.
The second was US Trade War Liberation Day, which caused other countries to worry about US reliability.
The third now is the Strait of Hormuz, and it looks like Iran is in charge, and that makes the petrodollars that the Persian Gulf countries were putting into US Treasuries quite suspect in terms of how much they will continue to invest there versus put money elsewhere.
And now the fourth one is that US yields blowing out are causing the US Treasury to take a bit of a panic step.
So, gold, in my opinion, absolutely has to be a core part of investors’ holdings. We’ve added to gold in the last few weeks, including gold equities, because we’re very bullish on gold as a secular play driven by geopolitical factors.
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