The Fed’s recent rate cut was called “hawkish,” which is simply wrong. Hawkishness means tightening the money supply and raising interest rates. So what’s going on? Here’s how the Fed’s latest moves will send gold higher…
By Peter Reagan
Your News to Know rounds up the most important stories about precious metals and the overall economy. This week, we’ll cover:
- Fed cuts rates, but delays future cuts…
- …suggesting many exciting things about gold you won’t hear on CNBC
- The growing consensus among traders forecasting $40 silver in 2025
- Have we been too harsh on the Texas gold-backed digital currency proposal?
Fed’s dovishness will extend gold’s run
The Federal Reserve’s latest rate cut is being called “hawkish” by some. The post-FOMC press conference’s tone seems to support that interpretation.
Fed Chair Jerome Powell continues to cite vast and mighty economic strength – the kind that only he seems to be able to see. But the tone and speculation surrounding this most recent rate cut, and what comes next year, has opened up some very exciting prospects for the price of gold.
All year, everyone has been talking about 2025 being yet another great year for gold. That’s the consensus. Should gold hit $3,000, it probably happens next year.
But what then? That is where opinions take different turns…
Gold bulls have been assuring us that gold’s run can extend to 2028 or 2030 without breaking a sweat.
While we haven’t really seen many opinions to the contrary, there have been forecasts for a correction since the start of the year. (Side note: A “correction” is defined as a 10% drop in price – usually followed by a recovery. A correction is totally different from a “bear market,” defined as a 20%+ drop in price followed by years of sideways price fluctuations.)
Market participants want gold to pull back, because all markets move in cycles. Analysts get anxious the longer an asset’s price keeps running in one direction (whether it’s up or down). Consider we’re discussing two consecutive years of double-digit gains for a relatively slow-moving asset like gold… Well, some tension and anxiety is perfectly understandable.
But now, we appear to have the first solid evidence to suggest that gold’s gains could extend to 2026, ignoring the market push for a correction in all things, fundamentals be damned.
This evidence comes in the form of markets not only pricing in a single rate cut by June, but some speculating that we could only see a single cut throughout all of 2025.
Just to remind you, official narrative is that gold goes down during interest rate hikes and up during cuts. Tight monetary policy means stronger U.S. dollar and all that.
While the “going down” part doesn’t really hold up to historical precedent and is a case of weird sentiment, the “going up” part does, and needs to be paid attention to here.
Gold investors, for all the gains we’ve seen so far, are waiting for rate cuts. Why was 2025 supposed to be the year that will launch gold to $3,000? Because that is when the Fed would end its tightening in a more formal sense than this year.
Except now it looks like 2025 will be even less formal when it comes to easing monetary policy. None of the forecasters have adjusted their gold targets to the downside because of this.
This means that, if the Fed cuts rates only once next year, gold has all that’s needed to extend its run into 2026. It’s waiting for an officially weaker U.S. dollar, which will come as a result of cutting interest rates. And by all accounts, this isn’t to happen next year.
What do gold bulls say these days? A quick search will turn up some notable names saying that not only is gold not going back to $2,000, but that 2025 could be the last year of gold under $3,000.
That’s the standard high upside forecast, but we now see a mechanism through which this could unfold. If the Fed keeps things as is for all of 2025, and then unleashes a cutting cycle in 2026 after gold has already hit $3,000, the path is mostly clear.
Traders forecast $40 silver in 2025 (but it should still be higher)
First $40 then $50 for silver. That is what we’ve been saying for a while. We’ve mostly moved on from talking about $26, $32 or $33 silver because those numbers look like ancient history these days.
According to the gold-to-silver ratio, silver is cheap relative to gold, but what isn’t silver cheap relative to? We saw $48/oz silver back in 2011 when gold was $1,900, which seems like a laughably low price for gold today.
Inflation alone should have already pushed silver firmly between the $40 and $50 range. Back in 2011, we didn’t have a global green energy push that requires massive amounts of silver – nearly 200 million ounces in 2023 alone! We didn’t have the growing popularity of electric vehicles, that also require silver – a projected 89 million ounces in 2025.
We didn’t have growing annual supply deficits depleting millions of ounces of silver from vaults worldwide. And we also didn’t have talks of the automotive industry actually competing with investors in the near future because there simply isn’t enough silver to go around.
Was gold a beneficiary of the Basel III agreement, one which placed more stringent requirements on backing gold products with bullion, yet left silver less defined? Are we seeing silver continue to suffer from price suppression, as Wall Street Silver has been claiming forever, while gold managed to escape similar efforts?
Seeing 48% of retail investors recently surveyed state that silver is going to $40 has been a step in the right direction. The markets need to acknowledge that $40 and $50 are realistic levels, not the $30 range.
Saxo Bank pointed out some spot-on things about silver, only to gloss over some pretty obvious issues. The good side of their report is that they accurately note that silver “only” hit a 12-year high, while gold hit more than 30 ATHs this year.
However, that 12-year high is again referencing the $48 figure, which one could easily argue should have been silver’s price all along. So it’s more that silver suffered 12 years of lows rather than having a Bitcoin-style catch up to some past lofty figure.
Saxo Bank then goes on to say silver might outperform gold with a 25% gain to gold’s projected 13%, or $40 to gold’s $3,000. But that’s not much of an outperformance.
$3,000 gold, while certainly not uncalled for, is huge. $40 silver isn’t really. Taking into account price levels from 2011, if gold hits $3,000, silver should be upwards of $60 as an absolute minimum. That’s before we start talking about outperforming gold.
That is how underpriced silver currently is. If it hits $40 or even $50 next year, it will still be not quite there compared to gold’s $3,000. So prospective silver investors can’t seem to go wrong with current valuations. A $50 silver price “out of nowhere” would be considerably less surprising than $100,000 Bitcoin, despite what might be the trendy opinion.
Texas gold-backed digital currency project: Pros and cons
As I reflect on Texas House Bills 1049 and 1056, I can’t help but think that I may have been overly harsh on the prospect of a Texas-issued, gold-backed digital currency.
We had plenty of reason to overlook the proposal, because on the front of it, it looks like yet another attempt of getting people away from physical gold and convincing them that digital gold is just as good.
As we approach January 14, when debate on the bill officially begins, we should focus on a key point of the two bills: redeemability.
Unlike your standard “trust us” digital gold product, the Texas state-issued gold backed currency would have to be fully redeemable for gold by the state treasury.
How this benefits sound money is pretty straight-forward. Young people with a lot of crypto savvy but who might consider gold bullion a “barbarous relic” would only be a transaction away from getting their hands on physical gold bullion, so long as they can make their way to Texas.
The word “crypto” is already being used, although it isn’t clear how the Texas digital gold currency would actually be related to cryptocurrencies. I’m sure the word “blockchain” comes up a lot. The Central Bank Digital Currency (CBDC) craze seems to have died down for the time being, so Texas might simply opt for existing digital solutions to avoid the time and expense of creating an entirely new infrastructure.
If this currency is widely accessible, it could be an easy way of emptying out the Texas Bullion Depository, manifesting a forceful return to gold. High net worth individuals from all 50 states pouring in? Small-scale investors jumping to the opportunity to buy incremental physical gold with spot price?
These stipulations kind of tell us why the bills might not go anywhere. Texas is still part of the government, as are those who are supposed to vote in favor of the bill.
Approving it might simply be too forceful of an attack on the Federal Reserve and its paper currency than most in our official sector are willing to make.
It’s only fitting that we’re discussing this amid more threats of a government shutdown, which is often threatened but never amounts to anything.
We’d like to be proven wrong here, though, and are excited to see how this will unfold, with a little over three weeks to it. If the bills go nowhere, it will be a disappointing blow to the sound money movement that will nonetheless keep fighting the good fight.
If they do get passed, there’ll be plenty to think about for currency users – which is to say, every person in the U.S. Possibly worldwide, too…