from Birch Gold Group:
A $3,500 gold forecast isn’t just about price – it’s a warning. Central banks are ditching dollars for bullion (while the gold/silver ratio just broke 100:1!) Amid back-ups at Swiss refiners and compliance with the Basel III accord, are even U.S. banks ditching the dollar?
TRUTH LIVES on at https://sgtreport.tv/
StoneX: $3,500 gold looks plausible, and refiners aren’t ready
Some of our mid-term readers might recall a kind of adage of ours over the past two years.
As gold kept barreling above $2,000, on and on, we said that we can only be a little bit pleased, because gold doing well means the economy and the dollar are doing badly.
Now, a similar argument has been made with perhaps an even more interesting turn on a podcast hosted by StoneX’s Senior Market Analyst Fiona Cincotta, and featuring Rhona O’Connell, their Head of Market Analysis for Asia/Emerging Markets.
Asked what could possibly be a headwind for gold, O’Connell said:
“I said to someone recently, on humanitarian grounds, I would like to see gold price peak this year because that implies that geopolitical risk is subsiding, and hopefully armed tension might start to dissipate.”
It’s an interesting idea, and shows just how strong gold’s position is now (regardless of fluctuations a hundred dollars up or down).
Geopolitical risk and armed tension aren’t likely to dissipate in the near term. Russia isn’t likely to lose its appetite for reconquering its former territories. China’s still eyeing Taiwan and smacking its chops.
Actually, put that way, one could argue there is less of both now than, say, a decade ago. The Gaza conflict is protracted, but Iran, to our knowledge, isn’t yet testing nuclear weapons and making hysterical demands in the North Korean fashion.
That leaves us with what the pair called the $3,500 gold price question, jokingly calling it $4,500 according to JPMorgan.
And JPMorgan is far from the only blue-chip firm making those kinds of forecasts, by the way.
Stagflation was already a considerable threat, so it’s unsurprising to see it re-appear as a concern. Because it never went away. The risks have been there all along.
Still, in listening to the podcast, we get the sense that its twin is also here, in the sense that investors are worried about a dollar weakened by the administration’s fiscal and trade policies – adding up to a slower economic growth in the years ahead.
However, the highlight of the podcast was perhaps O’Connell’s dive into the COMEX-London-Switzerland situation. As she explained, it’s extremely rare for even 5% of short positions on COMEX to be settled physically, with a 40% normal cover to be on the safe side.
That cover has now gone up to 83%, resulting in some 650 tons of gold shipped to New York in short order. That is a lot of gold bullion during a time when central banks are buying over 1,000 tons a year, which O’Connell predicts will continue for the foreseeable future.
Interestingly, O’Connell blames the lack of fungibility between New York and London. I agree, it’s absolutely absurd that London’s 400 oz gold bars can’t go to New York without a side trip to Switzerland to be recast as 100 oz COMEX gold bars. That adds so much additional complexity and cost! And it’s mostly a convenience anyway – COMEX contracts allow for other weights of gold, but the 100 oz gold future is the most popular. So commodities speculators and their preferences really do have an impact on the real world – not just prices, but logistics.
It’s so frustrating to see the tail wagging the dog.
Especially in light of the Basel III agreement, which names only physical gold bullion as a Tier 1 reserve asset. Not futures, not leases, not promises – just physical gold. Maybe Basel III is in fact involved in this current supply situation?
There would, in fact, be extremely interesting – if American megabanks started following the example of global central banks, and diversifying their reserves with gold bullion in record amounts?
Because if it is, then the surges in gold price are directly correlated to that new source of demand.
