This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: BofA forecasts $3,000 gold as central banks keep buying, taking apart some narratives against gold, and mysteries surrounding Chinese gold abound.
From Peter Reagan at 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?
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.
And we’re told that we’re seeing a mining boom, even though we just recently covered a NASDAQ feature where a lack of gold supply was cited as the primary reason for a bullish long-term forecast for the metal. If we dig just a little deeper, we find out that the mining boom is actually the opposite. Profits for last year in the mining sector globally fell by 44% regardless of higher gold prices and are expected to fall an additional 36% this year. An 80% profit decline in two years doesn’t exactly constitute a boom, according to our definition.
“These price shifts can’t be fully explained by the usual fundamentals, and there is no clear answer to why the price of gold has taken off so spectacularly,” says Dumont.
But it’s exactly gold’s fundamentals that have been driving prices up, as we have been pointing out for the better part of the year. Gold has been moving up based on fundamentals instead of black swans. It tends to do that, but the move has been more intense than we’re used to, which shows that the fundamentals outlined above are exceptionally strong.
There is one thing Dumont is on point regarding, and that is that investor interest in the West has been tempered. But, as we outlined above, many are calling for a reversal of this as the trigger to push gold to $3,000.
The reason we decided to cover such a cynical take is primarily because we feel it’s dangerous to personal wealth. Notice how the article even specifically suggests you should profit: take your bullion. Bullion comes with a premium, which is usually lost when selling. Then, when you buy gold a year or two down the line due to another version of Bidenomics, you’ll be hit with what might be higher prices and once again pay the premium for the metal.
For all the bearishness, Dumont targets $2,100 for gold in 2024 and $1,900 for 2025. Does this really sound like a precipitous fall worth panic selling, even if the points made sense?
It should also be mentioned that those targets are in U.S. dollars. In Canadian dollars, gold is considerably higher because the currency has lost even more value. Yet still, Canadian pundits apparently wonder why gold is as high as it is.
The belief that China is hiding its true gold reserves is now mainstream
We’ve enjoyed watching the evolution of the idea that China has considerably more gold than it’s letting on. The most interesting part in all this is probably that this is not a new idea.
Going as far back as 2014 and 2015, there were analysts saying that China’s gold hoard is double what has been reported. This was even before the “trade war”, when China was unofficially introduced as our economic enemy, in a manner of speaking. It was long before BRICS and talks of its gold-backed currency.
Yet somehow, this year, we were told that China not officially disclosing a purchase of a few monthly tons of gold was the reason for a gold market selloff. Mike Maharrey gives more weight to the idea than we have. We called it out as complete nonsense, because we believe that China’s official figures have little to do with their actual stockpile. They might, in the sense that the underwhelming number is meant to take Western eyes off gold as something surrounding it brews in the background.
But we’re still left with the issue we mentioned. Why and how still “only” double, or some 5,000 tons? If China had 5,000 tons in 2014 and 2015, it’s not likely to have a similar amount now that things globally appear to be gearing for some kind of gold-oriented monetary shift.
We find a good overview here, where Chen Long says that 2,700 tons of gold have gone missing from China’s publicly-available market, so to speak, in the last two years. Of the mystery buyers possible, Long first suggests the PBoC, but still says that this would only place the stockpile around 5,000 tons.
If China was already speculated to have 5,000 tons of gold in 2015, how can it have 5,000 tons if the PBoC bought 2,700 tons of gold off the record in just two years? And what about all the previous years?
The 30,000 ton figure seems to be the far likelier option, and it’s one that Gainesville Coins’ Jan Nieuwenhuijs elaborated over a year ago. In other words, the total stockpile is probably higher now.
We’ve been sort of tempered with BRICS developments and its supposed R5 currency so far, approaching it with a sort of “let’s see what happens” attitude. But in the face of these figures, and what is now a mainstream acceptance of China’s gold stockpile being much higher than reported, some obvious issues arise.
To put it simply, neither the private nor the official sector investor wants to get duped into thinking China is buying and holding tiny bits of gold only for a gold-related BRICS announcement to be unveiled. Along with a “by the way, we have 30,000 tons of gold” note from China.
But what would be even less pleasant is to find out that the U.S.’ behemoth, gargantuan, far-above-any-country 8,000 ton gold stockpile is neither that nor there. It’s that stockpile that affords the U.S. dollar its global reserve status.
Fort Knox has been in need of an audit for a long time, and the refusal to perform one should already ring plenty of alarms, even if the vault doors are staying locked.