The announcement by US President Trump that he would not take over Greenland by military means and that he now does not want to impose extra tariffs on several European countries has caused the gold price to fall back below the 4,800 USD mark – but only in the short term!
In the meantime, gold has overcome this mark again and seems ready to continue its rally. And according to the experts at Sprott, the large institutional capital is still in the “orientation phase.”
From the perspective of many market observers, the gold price has already seen a remarkable increase – but according to one of the best-known players in the precious metals segment, the next big step could still be ahead. The experts at Sprott Inc. argue that the strongest buyer group of many asset classes to date – large institutional investors – has not yet become as active in the gold market as the price development would suggest.
According to Sprott, the core issue is not a lack of awareness. The price movement of the gold price is now “impossible to ignore.” Nevertheless, a broad shift towards gold has so far failed to materialize. He provides the explanation with a model that originally comes from the military sector: the OODA loop (“Observe, Orient, Decide, Act”). For McIntyre, this sequence describes why institutional investors register what is happening on the gold market, but still hesitate in practice.
Gold price and the OODA loop: Observed yes – implemented not yet
According to Sprott’s presentation, many large asset managers have long since passed the first stage: They have observed the gold price rally. However, the second stage, the “orientation”, is decisive. A large part of the institutional world is stuck there. McIntyre justifies this with a structural problem: In many firms, knowledge of precious metals has thinned out over the past ten years. Teams that used to build up expertise in gold and mining stocks have become smaller or disappeared altogether in many places. There is also often a lack of an internal voice that continuously represents the topic in the investment committees and makes it capable of arguing in stressful phases.
This has consequences: Even significant price gains in the gold price, which would typically lead to strong inflows in other asset classes, would trigger additional review processes among institutional investors – instead of decisions. Sprott describes this as an ongoing due diligence phase: They are dealing with the topic more intensively, but implementation is not forthcoming.
For their assessment, the analysts also refer to their own experience: Despite the strong development on the gold market, Sprott has not yet received a new institutional mandate that explicitly targets gold or precious metal stocks. In other sectors, according to their comparison, asset managers would become active very quickly and reallocate capital in the event of price gains in the range of 60% or more. The reaction to the gold price is noticeably subdued.
Signals from the market: ETFs, mining stocks and risk appetite
Sprott also sees this restraint reflected in indicators that are often regarded as barometers of sentiment. For example, holdings in gold-backed ETFs are still well below previous highs. In addition, participation in mining stocks – i.e. the part of the sector that often develops additional momentum in boom phases – is, in his perception, still “depressed.” Likewise, risk appetite within the precious metals segment is historically low.
For Sprott, these are not typical characteristics of a late cycle in which the market is already “overrun.” On the contrary: They interpret this data as an indication that the gold price has risen sharply, but the large potential buyers have not yet entered to any significant extent. Sprott derives from this the thesis that the environment for a further phase of the movement could fundamentally exist – but only when the OODA loop switches from “Orient” to “Decide” and “Act” among institutional investors.
What could trigger the next step in the gold price, according to Sprott
Why should the behavior of large investors change at all? Sprott expects that a shift towards the gold price will be driven less by the pure price development, but by instability in other markets. The experts refer in particular to equity markets, which have so far “protected” investors from tough portfolio decisions. Only when volatility increases there or risks become more visible could gold as a hedging instrument come into focus on a larger scale.
Another possible trigger is stress in the bond market. Sprott argues that the development of national debt and an environment of “persistent” inflation limit the scope for errors. In this context, the analysts are critical of long-term government bonds: In a low-interest-rate world in which inflation risks also exist, holding long maturities is risky from their point of view. If these risks have a greater impact on portfolios, the gold price could receive additional demand as an alternative “safe haven.”
Sprott outlines what an adjusted portfolio could look like as a personal preference: The analysts speak of a core position in gold and a tactical position in mining stocks. However, this is presented as a framework for institutional thinking, not as a general instruction for action. At the same time, Sprott points out that many analysts are discussing reaching 5,000 US dollars per ounce of gold this year. Regardless of specific price targets, Sprott sees the gold price in an environment in which it could remain relatively strong compared to stocks and bonds over a longer period of time.
The bottom line is his message: The gold price has already been able to attract a lot of attention – but the capital that often reinforces the biggest trend in classic cycles has so far been more of a spectator than a driver. This is precisely why, from the perspective of the Sprott analysts, it is worth looking less at what gold has already done, but at when institutional investors switch from observing to acting.
