Howard Marks, co-founder of investment firm Oaktree Capital, has voiced his scepticism over gold’s rallying run, believing economic conditions have not caused the surge and there is “no intelligent way to assess the intrinsic value”.
Speaking on The Master Investor podcast with Wilfred Frost, Marks attributed the precious metal’s long standing run to popularity, believing the recent surge in gold price has been driven by investors feeling the pressure to secure the asset in fears of missing out on the rally.
In turn, this fresh wave of demand pushes the price even higher.
Marks said: “In the short run it’s [the market] a voting machine. It reflects popularity.
“And gold is having its day in the sun now with great popularity. So I think that’s the main reason.”
Marks went on to dismiss claims that the rally has primarily been caused by wider macroeconomic fears, including ongoing geopolitical tensions and the strength of the dollar.
Speaking on these concerns, he added: “Well, if that were true, then would the stock market be at an all time high? And would the world’s currencies be relatively stable?
“People are worried about the dollar…the dollar’s been stable for six months.
“So I don’t think you can make that point.”
Gold hit record highs earlier this week, trading at $4,379 per ounce on Friday, with the price soaring 65 per cent this year to date, putting its gain ahead of most major asset classes.
Goldman Sachs predicts this rally is unlikely to end anytime soon, forecasting the price of the metal to hit $4,900 dollars by the end of 2026.
Assessing the value
Marks also argued that gold has no intrinsic value due to its inability to grow or generate income, leaving supply and demand driven by investor sentiment the only way to determine asset’s price.
He said: “It doesn’t produce cash flow so you can’t talk about what the right price is…I mean what’s the right price for an ounce of gold?
“There is no intelligent way to assess the intrinsic value.
“You can invest in gold because you’re scared, you can invest in gold because you’re aggressive…you just can’t do it analytically because you can’t tell me what the right price is.”
Mag 7 and S&P 500
Alongside questioning gold’s strength, Marks was also cautious on the performance of markets, believing investor’s behaviour has been skewed by an extended period of positive returns, leaving them to be less cautious with their investment options.
He said: “Risk taking has been rewarded, caution has been penalised.
“I would say that it has made people feel it’s more dangerous to be out of the market than in.”
However, his concerns did not touch upon the highly valued Magnificent 7 stocks, which include Apple and Microsoft, believing the valuations to be justified, hailing them as some of “greatest companies” due to their “huge profitability”.
Yet, he is concerned about the remaining 493 S&P 500 companies, believing their valuations are unjustified and are trading too high.
He concluded: “Why should the other 493, which are much more mortal, be selling at PE [price to earning] ratios above the historic average for the S&P over the last 80 years?”