from Birch Gold Group:
BofA’s Michael Widmer recently spoke to CNBC about where he sees gold going in the next 18 months, and it is an optimistic view. The bank’s Head of Commodities Research said that the obvious driver of gold prices is going to be continued central bank buying. And, based on what we’ve seen, with new entrants likely joining the market.
A World Gold Council survey found that 88% of the participants from the official sector consider gold a “long-term store of value and inflation hedge”. That might sound like your usual praise if it came from a portfolio manager, but central banks themselves?
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Remember, they’re the ones issuing money to begin with. That money is supposed to have value, isn’t it? So with 88% of central banks agreeing to this, are they basically admitting that the money they issue has no long-term value? It should discomfort any rational user of fiat currencies to see their printers throwing them under the bus.
And, as we frequently point out, central banks have always been open about wanting inflation, though they aren’t always transparent on the reason. We have heard it said time and again by central bankers that a 2% inflation rate is good for economic growth. Historical data alone completely dismisses the notion, and then we have the extremely damaging effect that inflation has on society in general.
In reality, central banks always chase inflation in order to pay off their debt, as it makes interest rate payments on sovereign debt more affordable. It’s bad money management on top of bad money management, and we’re all being charged for it.
Now, to top it off, they’re practically telling us to go ahead and park our money, that they themselves issued, into gold if we want to hold onto its value.
Widmer states that gold is well-positioned to hit $3,000 in the next 18 months, citing investor interest as one of the key turning points, if not the most important one. We have already mentioned that, despite what things might seem like, open interest isn’t actually there yet. For all the buying in Asia, Western investors are still skittish, both on the bullion and the paper gold side. High premiums don’t really explain it, as Asian buyers are dealing with much higher ones and still piling into gold.
We’re already seeing some corroboration of Widmer’s idea in this analysis, which suggests that open interest is inching upwards. The piece notes that 85% of North American professional investors had a gold allocation in 2023, compared to 76% in 2019.
While an undoubtedly large increase, we’d be more curious to see how the percentage has moved over the last two to three years. Nonetheless, the related survey reported that the overwhelming majority of private institutions in North America will either hold on to their allocation or increase it. Whether this is the start of interest that will push gold to the levels mentioned above remains to be seen.
“There is no reason for gold to be this high”… really?
This is now the third consecutive week where we must talk about the idea of gold being shaken out of weak hands. It shouldn’t be the case. Gold shouldn’t be something an investor can be scared into panic selling so that big buyers can scoop up even more of it. That’s more of a Bitcoin thing.
But here we are, facing a bombastic subheading from the Financial Post that claims: “Is it time to cash in your bullion? Maybe.”
In this article, the author speculates on gold’s mysterious rise with seemingly no drivers. She prominently quotes Marc-Antoine Dumont, senior economist for FCDQ, a Canadian financial services group. Headlines like these have been popping up since the start of the year, so we figured it’s time to address the mystery of gold’s rise some more.
Dumont says that there is no obvious reason for gold to be gaining this much, even though it has stayed statically high for weeks.
He says that gold remains elevated despite the risks of a recession lessening. Since the start of the year, this is maybe the second time we’ve encountered someone claiming that the risk of a recession has lessened. Everyone seems to claim the opposite, and those are just opinions considering the U.S. If we go global, the IMF tries to give it a positive note, but still admits:
“The forecast for global growth five years from now—at 3.1 percent—is at its lowest in decades.”
Dumont goes on to downplay central banks’ role in gold prices, saying that this is just a continuation of a trend that started in 2008. It sure is, but central banks in 2008, 2010 or 2019 weren’t posting 50-year annual records in terms of purchases.
Then we get to inflation, the pressures of which Dumont says have eased around the world. Where, exactly, might we ask? Are we not seeing country after country collapse its fiat, from Argentina to Turkey? Have we forgotten that a growing number of senior economists believes a normalization of a 4% inflation rate in the U.S. is coming? How about the general agreement that official gauges of inflation deliberately downplay it?
Dumont is puzzled by the U.S. dollar going up alongside gold, when in reality, there is nothing ambiguous about it. Clearly, big and small players in the market aren’t buying into the strength of a sovereign backed by a $34 trillion debt pile. And for that matter, Dumont makes it seem as if appetite for U.S. debt is increasing, not decreasing, despite countries dumping their U.S. liabilities in favor of gold left and right.
