Gold’s price is climbing, but not because of Iran, oil, or headlines. This run is about fundamentals, not fear. Meanwhile, silver’s move to $36 is just the beginning. Could $100 be the new floor? Here’s what the data – and history – say about today’s prices…
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:
- Gold hits $3,400 as Gaza conflict escalates…
- …but its price reflects fundamentals rather than the news cycle
- Inflation concerns have eased – despite the dollar’s historic plummet
- One analyst warns we are already in a recession
- The most reasonable forecast: $100 silver is the new floor
Fundamentals (not events) drive gold to $3,400
Gold spent last week trading above $3,400, while reports of escalation between Israel and Iran dominated headlines.
But how much of the price bounce came from fundamentals? Was news of the latest conflict in the Middle East only the latest spark to fall on the powder keg?
The headlines alone read like a black swan event – nearly hysterical. Even before, though, gold had already been inching above $3,300 and I’m not sure anything could’ve stopped it. Current events, even quite significant geopolitical news, is no longer that big a factor for the price of gold today.
Perhaps it is because we live in a world where what was once treated as a major event now only elicits a yawn?
Maybe we’ve grown desensitized to mayhem? (The pandemic lockdowns were terrible for our mental health…)
The likelier explanation, though, is that gold is on a run powered almost entirely by fundamentals, and that these unexpected events only give it a little push. If we think back to the lockdowns, that was the biggest black swan event of my lifetime… But gold’s price only rose above $2,000 after spending most of 2019 slowly and surely establishing a foundation at $1,600. Gold’s price action following the lockdowns further supports this idea. It took almost four years for gold to finally pull back. This was the summer of 2023, when the rate hiking schedule hit its peak, during what’s usually gold’s worst quarter of the year. Yet ignoring both, gold took off in the same quarter and began clearing levels far above most expectations — $2,000, $2,500 and then $3,000 to today’s price.
Right now, otherwise intelligent analysts sometimes talk about gold as if it’s a risk-on asset. Saying gold is “overbought” or “frothy” or even (this really irritates me) “a fad.” As if mankind’s track record of gold as a safe haven store of value (all 5,000 years of it!) didn’t exist.
It’s true – gold’s price will not always go up, day in and day out. Gold’s after-inflation average annual return of about 4% does not come in a straight line. But you have to ask yourself, will gold’s price EVER go back to its pre-pandemic levels? I don’t believe it will. I doubt we’ll ever see $2,500 gold again. A pullback to $2,800 wouldn’t surprise me, but I doubt it would last very long.
Usually, with asset prices, there’s no such thing as a “permanent plateau.”
No shortage of analysts would have felt that $2,000 was a green target for gold in 2025 just two years ago. So it looks almost impossible for gold to post any significant losses, especially since gold never seems to post losses when viewed over 10-year periods.
The consensus mainstream forecast for the next 12 months has mostly been $3,500 to $4,000 gold, with exceptions becoming increasingly difficult to find. The current conflict in the Middle East may help push the price there sooner rather than later.
So all that these escalations do is make it seem like gold needs, or is depending on, some kind of huge black swan to do well. The opposite is true.
An example of this misguided thinking can be found here, where a pundit says not to expect a major run in gold unless the conflict threatens oil supply.
But we are already in a major run, and have been for two years, one that has little to nothing with Iran.
So investors can send their hopes out to the people affected by the conflict while resting in the knowledge that gold is outperforming irrespective of it.
Watch out for dollar value drops rather than de-dollarization, analyst says
I’ve done a few “British view” coverages recently, and they tend to provide us with plenty of insight and amusement. Readers might recall how Dominic Frisby has “being British” as one of the top reasons to own gold because of the pound sterling’s structural and face weakness.
But elsewhere, the CIO of British financial firm Coutts remarks how investors have actually sustained losses if they took their positions in the pound sterling, not the U.S. dollar.
That would have been a decision advised perhaps six months ago because of the greenback’s strength, but not anymore. Now, the greenback is looking to beat all other top fiats as the worst performer.
Jamie McGeever’s report titled Dollar despair deepens advises investors to let go of the de-dollarization narrative and instead simply accept that the dollar is losing ground. (That has been an attractive crutch, hasn’t it? The Federal Reserve can’t exactly be held responsible if global banks keep shedding their dollars.) It’s much more difficult to understand that the U.S. dollar is shedding value all on its own.
This is clashing head-on with a recent University of Michigan survey that claims consumer sentiment is not only improving, but improving faster than expected. Furthermore, we are told that inflation expectations are also improving – officially, at least.
Can this be real? Remember, the majority of Americans are so skeptical that they don’t believe Fort Knox has the gold it claims to, and perhaps with good reason. But all of a sudden, we’ve grown fond of Federal Reserve’s euphemistic or downright fraudulent inflation gauges and their general monetary management?
This doesn’t seem right, because David Rosenberg, founder and chief economist at Rosenberg Research, says that we are already in a recession that markets have yet to wake up to.
It does feel that way, and has for quite some time. First-quarter GDP growth was, in fact, negative. Many experts have alerted to the same point.
Rosenberg was both accurate in his forecast of the 2008 crash and the pandemic lockdown-induced recession. And here, he absolutely dismantles any notion that the U.S. economy is genuinely picking up steam.
So where are the respondents of the University of Michigan survey getting their optimism from, if that survey wasn’t commissioned by the Fed? Either way, the alarm bells of the U.S. dollar’s weakness and how it ties into gold’s run should be rung daily until everyone gets it.
A silver market primer and rational silver price forecasts
Since we keep saying that $36 or even $40 aren’t particularly interesting silver forecasts, you might have wondered: What is?
Keith Neumeyer of First Majestic Silver gives us a $100 silver price target and plenty of reasons why it should be reached. It’s a good start as far as silver forecasts go, but I personally believe silver can go much higher.
In 2023, Neumeyer explained the grim reality of the silver market that nobody seems to be paying attention to:
“If you want to go and buy 100 billion ounces of silver in the futures market, you might not even move the price because some bank just writes you a contract that says you own it,” he said.
According to Neumeyer, banks have got shorting silver to a science, and can always buy back by putting downward pressure on the price. Does that sound like something we might be seeing?
“If the miners started pulling their metal out of the current system, then all of a sudden the banks wouldn’t know if they’re going to get the metal or not, so they wouldn’t be taking the same risks they’re taking today in the futures markets.”
Silver was always intended to be a distant, secondary beneficiary of the Basel III agreement, which was really intended to manage gold, not silver. Perhaps the Basel Committee on Banking Supervision knew, when drafting the agreement, that banks are far more exposed to silver than they are to gold?
If immediately applying the Basel III requirements to gold bullion would have caused a banking crisis, well, doing the same with silver might have triggered a total banking collapse.
Neumeyer’s forecasts of $100 to $130 silver came before this year, when silver posted a 30% gain to reach the aforementioned target of $36. But as we have repeatedly said, it is not enough.
Neumeyer recently explained how mining silver is not a particularly profitable venture, and how triple-digit silver is needed to facilitate the opening of new sites. That’s because a shocking 70% of silver comes from mines focused on base metals (copper, lead and zinc). In other words, it takes a major surge in silver price to support development of new deposits.
This dynamic is behind the staggering annual deficits of 150-200 million ounces, or 10% to 20% of total supply annually since 2021. These deficits also jump unexpectedly, going from 81 million ounces in 2021 to 253 million ounces in 2022.
Here comes a pressing question. Silver is both an industrial and investment metal, a tangible asset. How can it possibly have a deficit of 253 million ounces in a year without the price of silver reflecting it?
Manipulation is the answer in one word. Like in every other sector, downward pressure on silver is what’s keeping banks (and therefore the global economy) afloat. But we still have to wonder what other asset or commodity could have a deficit of 10% to 20% annually while either seeing no price action, or actually experiencing negative one.
You will be told that silver gained “massively” this year, but $36 isn’t even in the ballpark of silver’s all-time high price. So while Neumeyer highlights the long-term for his $100 and above forecasts, I don’t necessarily agree it has to be that.
If we look far into the future, I’m confident we’ll see $10,000 gold. I also believe we don’t need to look very far ahead at all (a year or two at most) to find $100 silver.