Amid a cresting wave of consolidation in the gold mining space as spending on new mines has dried up since 2011, billionaire investor Sam Zell is buying the shiny metal “for the first time in his life” because he sees opportunities stemming from an expected shortage in supply.
Gold notably didn’t perform as well as many might have expected during the eruption of market volatility during Q4, but some investors see scope for the shiny metal to embark on its strongest rally since the crisis after years of lackluster returns as global economic growth slows and investors look for somewhere to hide.
That, and the impending supply crunch that Zell envisions from the drop in new mining capacity – the capacity of unmined gold still buried in existing mines shrank by 40% in 2017 – are the two reasons why Zell has been buying.
“For the first time in my life, I bought gold because it is a good hedge,” Sam Zell, the founder of Equity Group Investments, said in a Bloomberg TV interview. “Supply is shrinking and that is going to have a positive impact on the price.”
“The amount of capital being put into new gold mines is a most nonexistent,” Zell said. “All of the money is being used to buy up rivals.”
And though official rate of inflation has started to decelerate once again in recent months, signs that the actual rate of inflation in the underlying economy is higher than it might appear could also be a positive for the shiny metal.