(Kitco News) - Despite all the volatility so far this year as gold suffered a significant correction from its record highs, one fund manager says the precious metal’s secular bull market remains firmly intact, with expanding global money supply and unsustainable government debt ultimately driving prices toward $20,000 an ounce.
In an interview with Kitco News, Kevin Smith, founder and CEO of Crescat Capital, said that gold was looking overbought at the start of the year as prices rallied to an all-time high of $5,600; however, despite the months-long correction, he believes the fundamental monetary forces supporting the precious metal have only strengthened.
“I think the gold market got a little bit ahead of itself earlier this year, January and February,” Smith said, adding that a pullback was natural after the strong rally.
Smith said two developments helped drive the correction: the appointment of Federal Reserve Chair Kevin Warsh, who entered the central bank with a hawkish reputation, and the war with Iran, which raised inflation concerns and caused markets to dramatically reprice interest-rate expectations.
However, Smith said the market is now starting to question whether the Federal Reserve can actually deliver the restrictive monetary policy implied by Warsh’s rhetoric.
“I think the Fed is really powerless to fight, to control inflation,” he said. “The opposite of what Warsh might claim, because I think they’re really captured in this fiscal dominance regime by the fiscal imbalances and the need to keep interest rates low.”
Crescat made a similar argument in its July report, saying investors have priced in an overly hawkish monetary-policy outlook. The firm argued that mounting fiscal imbalances have pushed the U.S. into an era of fiscal dominance, where monetary policy is increasingly being used as a debt-management tool rather than a credible mechanism for controlling inflation.
Smith said the problem is that the government’s debt burden and historically large deficits make substantially higher interest rates increasingly difficult to sustain.
“The only way out of this debt-to-GDP problem that we have is to grow our way out of it,” he said. “But that growth comes with nominal GDP growth, which includes a substantial inflation component. And I still think that’s the bigger macro headwind for inflation and tailwind for gold.”
Against that backdrop, Smith said Crescat sees gold eventually reaching $20,000 an ounce.
“Our view is that the mining stocks really offer the most alpha to gold. We’re in a bullish macro environment for gold. We have a $20,000 price target for it,” he said.
Crescat’s target is based on two independent macro models. The first compares global M2 money supply with the world’s above-ground gold stock. Extending the long-term trend suggests gold could reach $20,000 in approximately four years, although the firm believes accelerating monetary expansion could shorten that timeline.
Global M2 money supply, measured in U.S. dollar terms, has grown at a compound annual rate of roughly 7% during the past 22 years. Crescat expects growth to continue at least at that pace and potentially accelerate because of fiscal imbalances, banking deregulation and geopolitical pressures.
Smith said the model assumes gold increasingly reasserts itself as the de facto backing for the global monetary system as central banks continue accumulating the metal.
“We’ve got math to support this,” he said. “It does assume that we get to… a de facto backing of 100% of the global fiat money supply by the global gold supply.”
Even without accelerating money creation, Smith said the current trend supports the firm’s target.
“Just extending this trend at 7% money supply growth — 7%-plus global money supply growth that we think is going to accelerate — you can get to $20,000 in four years,” he said.
Crescat’s second model looks at gold relative to the S&P 500 and assumes a 50% decline in U.S. equities followed by a significant dollar devaluation. The firm noted that similar equity-market collapses and currency devaluations helped drive major gold bull markets during the 1930s and 1970s.
Smith said a gold-to-S&P 500 ratio of 5.25 following a 50% stock-market decline would also imply roughly $20,000 gold. That ratio would remain well below the 1980 peak of 7.58.
Although $20,000 represents a more than fourfold increase from current levels, Smith said he doesn’t see the target as particularly extreme given the monetary environment.
“I don’t think our $20,000 price target is crazy at all,” he said.
Smith added that central-bank demand is an increasingly important component of the bullish outlook. Crescat noted that central banks have purchased an average of roughly 1,000 tonnes of gold annually during the past four years, double the average pace of the previous decade.
Smith described the trend as a monetary “prisoner’s dilemma”: as some nations diversify reserves away from the U.S. dollar and accumulate gold, other governments face increasing pressure to follow.
He said the United States could eventually be drawn into the global competition for bullion.
“If central banks can simply print money and buy gold, that’s the prisoner’s dilemma,” he said. “If the U.S. dollar is going to remain the global reserve currency, it’s going to have to get into the game as well.” (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)
While Smith remains extremely bullish on bullion, he said he sees even greater value in mining equities, particularly exploration companies that have dramatically underperformed the metal during the past 17 years.
“The real alpha to this rising gold price environment, we think, is in the miners, and we think it’s even more so in the exploration segment of the mining industry,” he said.
Crescat’s report argues that this year’s precious-metals pullback has created an attractive entry point rather than undermining the longer-term investment thesis. The firm said its valuation models remain intact despite the volatility and described the correction as an opportunity for investors seeking exposure to the sector.
Smith said explorers could ultimately benefit from both rising metal prices and renewed merger-and-acquisition activity. Major producers have underinvested in exploration and mine development since the previous commodity cycle, leaving them increasingly dependent on juniors to replenish reserves and build their project pipelines.
He said there are already signs that larger miners are becoming more interested in exploration companies, even though the sector has yet to see M&A activity reach critical mass.
For Smith, the combination of rising global money supply, fiscal dominance, central-bank gold accumulation and years of underinvestment in new mine supply means the volatility seen in 2026 has done little to change the long-term opportunity.
“There are times when the exploration stocks can outperform, but we’ve just had this 17-year period of underperformance,” he said. “The math will just blow you away in terms of what the appreciation potential is.”
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