From Peter Reagan for Birch Gold Group
This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: CPM Group says 2024 and 2025 will be even better for gold, why silver stayed dormant in 2023, and gold is getting pricey in Egypt.
CPM Group: Gold has another two great years ahead
CPM Group’s Jeffrey Christian tackles a question many have been wondering: why did gold soar so strongly around New Year? In an interview with Bloomberg, Christian said that the firm is still waiting for today’s trading data for clearer answers, but nonetheless has some insight.
As he notes, the surge in spot price came as a result of sudden and massive trading volume, which appeared to be either covering short positions or making room for long ones. Either way, the big money that pushed gold price upwards appears to be betting on the metal to perform very well in the next 12-24 months, as is Christian.
He says that while bullish on gold, CPM Group advised investors over the past couple of years to expect the real gains to come in 2024 and 2025. The price action gold posted in each of those years sort of undermined this advice, yet Christian notes that it only reinforced the upside that is to come in 2024 and 2025. Namely, he believes that the year-end price action of 2023 was a precursor for the action on the way.
Curiously, Christian is less bearish on U.S. debt than most others. Instead of expecting the U.S. sovereign debt to start a domino effect that will drag other countries down, Christian expects the opposite. He says that the debt of other nations, along with consumer and corporate debt, are much worse issues that aren’t as easily solvable.
That’s not to say that the debt of the U.S. is, either, but he likens our current situation to that of the 1940s, from which we did spring back up from. And we all know how gold did in the aftermath. Besides our national assets, Christian expects gold to be the only refuge in a coming debt crisis, where gold will (as always) remain the only universal safe harbor.
It’s an interesting idea that somewhat diverges from popular opinion, as it comes during a time when the likes of Ray Dalio suggest turning to emerging markets and their fiat to avoid wealth erosion. But unsurprisingly, both sides of the forecast view gold as the only real safety to be afforded to investors as the issue turns from bad to worse.
Here’s the full video for your consideration:
Why silver hardly budged in 2023, and why this year looks different
Numismatic News’ Patrick A. Heller doesn’t beat around the bush when it comes to silver in 2023. Compared to gold’s 13.5% price gain last year, silver’s 0.5% increase looks less than impressive. Silver’s price is well known for its volatility (especially to the upside) when gold gains. Yet silver remained relatively static as other metals whipsawed. The stability of silver last year was surprising — almost gold-like in a sense, for better or worse.
For starters, Heller gives us a little history:
Over time, the prices of gold and silver on a daily basis move in the same direction about 70% of the time. That means for about 30% of the days, one of these metals will close higher than the previous trading day while the other settles lower. Still, over longer time frames they do tend to move in general tandem. Therefore, some people tend to expect both to move in the same direction over multiple weeks, months, or years.
In other words, Heller thinks we’re in one of those time frames where silver’s price will rise to match gold’s performance, to a lag where silver can take weeks, months or even years to catch up, and Heller believes that is what we are seeing right now.
Why don’t gold and silver’s prices move in tandem (in financial parlance, why aren’t they more closely correlated)? A few reasons:
- Gold’s primary demand comes from investment and jewelry, while silver’s is more industrial. Thus silver sometimes behaves more like a procyclical asset that rises in price when the economy is booming (like copper or crude oil).
- Silver isn’t often mined on its own. About half of silver comes from polymetallic mines alongside base metals (usually copper, zinc and lead). Only one of the world’s six most productive silver mines work pure silver veins. This means silver miners aren’t as responsive to price changes as gold miners, whose mines usually produce gold alone.
- Finally, and most controversially, the market for silver is less liquid than gold’s – which opens the door to accusations of price manipulation. (We won’t be taking part in that debate today.)
Another reason why silver stayed dormant, says Heller, is the lack of central bank demand. While central banks bought record amounts of gold bullion in the last two years, they bought no silver, which had an accompanying effect in both markets. Everyone knows that nearly every global central bank has gold reserves – but did you know that some central banks also have silver reserves? The U.S. has 23,000 metric tons (739.5 million troy oz) of silver reserves, for example. (Although Peru takes the crown with 98,000 metric tons of silver in its national reserve vaults.)
Regardless, silver isn’t currently top-of-mind for nations looking to diversify their reserves away from currencies.
Even so, Heller is highly bullish on silver’s long-term prospects. He quotes the Silver Institute’s projections of deficit and adding:
Silver has overall been in a large long-term shortage for the past few decades. On this basis, I expect silver to rise over time and to increase much more than gold’s price.
Heller says that $26 is undoubtedly a key level that silver needs to hold before we can talk about $30, $50, $100 and higher. If correct, we might have to look past highs and instead focus on the annual average price to know when silver’s breakout will really begin.
Don’t wait to buy the dip! A lesson from gold premiums in Egypt
Egypt is a country we have been paying close attention to for a while due to its developments pertaining to physical gold. On that front, we would estimate it ranks somewhere around the likes of Turkey: not quite as bad as Venezuela or perhaps Argentina, but enough to warrant a full-blown currency crisis.
And what a crisis it is!
Ihab Wassef, head of the Gold and Precious Ores Division at the Federation of Egyptian Industries, is urging Egyptians not to buy gold for a very unusual reason: it’s too expensive in the local currency. He’s encouraging locals to wait for a “normalization of premiums.” But how is this supposed to happen?
After all, the reason Egyptians want to buy gold is economic instability, starting with but certainly not confined exclusively to currency weakness (also known as inflation) along with regional geopolitical tensions. None of these issues have a remedy around the corner. If anything, they’ll probably get worse before they get better – if they ever recover.
So Wassef may yet learn that wanting gold’s premiums to normalize doesn’t get you very far, especially during times of crisis. Those who take his advice will, undoubtedly, be able to buy as much gold as they want at “normal” premiums over spot when no one else is desperate to buy gold anymore.
The real lesson here is, and forgive me for repeating myself:
“The best time to buy gold is before a crisis.
A “buy the dip” approach doesn’t help you if you need a safe haven asset right now…
This brings us to the idea of entry points and their limited application to the gold market. A standard “run for the hills” forecast for bitcoin, like the one issued by Gareth Soloway on Friday, says its price could fall to $15,000 if a recession hits. That would be a third of bitcoin’s current price, a 66% decline. (Is that realistic? Maybe, maybe not, and its price has always bounced back to previous levels, but that’s not the point I want to make.)
Try as hard as you like but you cannot find even the most bearish forecast predicting gold’s price will drop to $700. These days, even the worst forecasts for gold still project a price around $2,000.
What’s the difference?
Bitcoin is volatile. Its price surges and declines. Waiting for an “entry point” in a highly volatile market might be a good idea!
Gold’s price is much more stable. That doesn’t mean the price doesn’t fluctuate! After all, I’m sure quite a few readers are beating themselves up for not loading up on gold last summer at $1,650 (and nobody but us seemed to have a good word to say about it).
Here’s the primary takeaway: When you need a safe haven asset, it’s too late to worry about the price. In times of crisis, premiums over spot price soar (at least 2x for gold and 8x for silver during March 2020, according to our data). And you know what? People were happy to pay. Because a true crisis changes our priorities.
Consider the current case of Chinese investors, who continue buying, despite ever-increasing local premiums. Overall China bought 15.7% more bullion and 8% more jewelry in 2023 — nearly a 25% year-on-year jump in gold purchases. They aren’t waiting for premiums to normalize. They instead see grim times ahead and are doing their best to prepare, regardless of price.