from Birch Gold Group:
This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: Sky-high gold forecasts by top names, why the Middle East escalation proves gold’s run isn’t driven by military conflict and could a surprise interest rate hike push gold’s price down?
Global banks revise gold price forecasts, raising eyebrows everywhere
A recent call for $4,000 gold has been made. Which of our “usual suspects” was behind it? Frank Holmes? Alasdair MacLeod? Putin?
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As it turns out, UBS. But we’ll start with the more “tempered” forecasts and go on from there. The week has had a number of top Wall Street names issue some very bullish predictions for gold, with the moderate end being Goldman Sachs.
Once again upping their gold target, they gave a fairly detailed explanation of what’s behind the price move, with this choice quote:
“In fact, since mid-2022, most of the rise in gold prices has been driven by new incremental factors, ‘fear,’ including ‘fear’ that the monetary system will be difficult to maintain, fear of currency depreciation by emerging market central banks, and ‘fear’ about US fiscal sustainability and the general election.
It’s no small thing to have Goldman Sachs acknowledge the deep-rooted distrust in the sustainability of the current state of affairs. We can rephrase it in a more straightforward manner: investors across the world are wondering whether free-floating fiat is headed down the drain, and whether traditional assets are in for a serious review. Unsurprisingly, gold is the primary beneficiary of these worries.
Then we get to Bank of America, which goes as high as $3,000 in its forecast. Seeing the possibility of a much-needed rise of silver to $30 in the next 12 months, Bank of America had this to say:
“Gold and silver are being promoted by central banks, Chinese investors, and a growing number of Western buyers. Macroeconomic factors are favorable to gold and silver, including that the Federal Reserve will cut interest rates during the year. Once interest rate cuts are implemented, gold purchases should expand, which may further push up the price of gold.”
We’ll keep this very important note in mind for our story down below. For now, let’s focus on our third forecaster, which is UBS and their $4,000 price target for gold.
Like their target, their rationale is a gold bull’s dream. Unlike the previous two which focus on things like data and drivers, UBS simply finds the action as a form of price catch-up to what the real valuation should be. They back their forecast with multiple instances of just this dating back 50 years, while noting:
“If history repeats itself, it’s not too late to participate in this gold rebound. Investors holding 2-3 years may see the price of gold double to more than 4,000 US dollars.”
It’s an exciting time for all gold investors, and not just because of the price move. Everything UBS says makes sense, as we’re hearing left and right that gold is being re-introduced into the monetary system.
The truly optimistic gold bulls might hope that gold prices will become a secondary point of interest somewhere down the line, but not too far in the future. A scenario like the early days of America, where gold was money and its valuations were decided based on monthly and yearly fluctuations of supply and demand. Up and down money, instead of always down. It’s probably too extreme of a view given how entrenched central banks are in their system, so we’ll stick to hoping that UBS is correct.
Gold’s price moves may puzzle analysts, but there are rational explanations
If gold investors open the headlines right now, they will be told that gold’s rise happened due to Iran launching drone attacks on Israel. But that is inaccurate.
Gold climbed to another all-time high of $2,431 before immediately pulling back on Friday, April 12, with this analysis published in the evening hours noting it had encountered technical resistance when it reached that level. But the strike was launched on Saturday evening, around 24 hours after the aforementioned action.
If the military conflict in the Middle East was truly the driver of gold’s price, we could not have the retracement that we did. This is possibly the biggest escalation since the conflict started, so gold should have climbed right back to $2,431 before shooting to highs that are anyone’s guess.
This report published earlier today almost pretends like gold didn’t shed nearly $100 after the attack, saying it rose by almost 1.2% after the drone and missile launch. But that rise still “only” brought it to $2,361, which, as you might recall, is an all-time high set over a week ago.
To be clear, the conflict between Israel and Iran, along with possible proxy nations, is of greater significance to the global markets than the Russia-Ukraine conflict. Ukraine was and is merely “assisted” by the West, while the U.S. has voiced full support of Israel. Given that the gap between the West and BRICS has widened further in the meantime, gold should have, by all accounts, leapt to some really high levels. As you might also remember, it did just that when Russia attacked Ukraine, going to an all-time high with such force that it surprised many.
And so the story of what’s really driving gold up takes an even more complex turn. We now appear to have evidence that it isn’t the Gaza conflict. There have again been no drivers of note. Dominic Frisby has turned gold bear on the issue, in an analysis that can be taken with a grain of salt as he wonders if we’re seeing a Hunt Brothers scenario unfold. Well, that’s a stretch for too many reasons to list, but it’s interesting from a curiosity standpoint alone.
Frisby is a known gold bull, so we are in some strange times when he is calling for a price fall and UBS for gold price to double within two to three years. Chris Wood of Jefferies, a veteran investor, doesn’t go to the extremes that Frisby did, but still scratches his head, too. As if it’s supposed to be a critique on the price move, he says that:
“The physical premium on gold bars and coins traded in Singapore are at only a normal 1-2% compared with the 7-8% levels seen at the peak of the last bull market in 2011 and 2012.”
