Gold Rises on Inflation, Exhaustion of Stock Market Optimism, and This

Gold Rises on Exhaustion of Stock Market Optimism, Fears of Inflation, and This
Photo by Sabrinna Ringquist

Sentiment from both Wall Street and Main Street has gotten progressively more bullish on gold over the past few weeks, and with good reason. Gold has now posted its third straight week of gains and appears to be looking for another resistance level to breach.

The metal’s move past, and stay above, the important $1,800 level has been in focus for many. Friday’s trading session had it inching towards $1,830 before closing the day above $1,810 in yet another example of bullish action that has been on full display for nearly a month.

Gold may drop before it launches much higher: Newton Advisors

Newton Advisors’ founder Mark Newton says that, from a broader standpoint, gold’s price could experience another significant dip below $1,750 that would let investors get in on the action. Newton told CNBC that this is because June and July are traditionally the weakest months for gold in a year, making the latest run all the more impressive.

Regardless of whether gold experiences such a pullback, Newton says $1,855 is the next level to watch out for and that breaking it will most likely have gold pushing towards new highs. The gains over the past weeks came in good part over doubts that the global economy will recover as some optimistic forecasts are claiming.

Inflation is only the second most-important issue: Mobius Capital Partners

It can also be interpreted as an exhaustion of optimism in the more risk-on markets, a stance that was very much prominent heading up to June. Seasoned investor and co-founder of Mobius Capital Partners Mark Mobius believes that the narrow focus on inflation has actually sidelined a much bigger problem.

As investors and people worry about prices of goods and services rising, many of them forget that the true cause of this is currency devaluation, said Mobius in a recent interview. Mobius is one of a number of prominent experts who doubt in the accuracy or even altogether relevancy of the CPI as an inflation gauge.

While the CPI rose this year at its fastest pace since 2008, Mobius says that it leaves too many factors out and that prices are actually rising much more rapidly. The spike in prices, says Mobius, is the result of a currency losing its value, as has unfortunately been the case throughout history. This is why companies treat any spike in inflation as currency debasement, and why gold is likely to come into prominence as a store of wealth over the coming months.

Mobius’ comments over currency devaluation come during a time when the U.S. dollar faces some of the biggest threats to its status in a long time, partly due to money printing and balance sheet expansion and partly due to a broader loss of faith in fiat. In general, Mobius expects gold to continue moving up along with inflation, especially since central banks are actively targeting it instead of attempting to deflate their currencies as part of standard policy.

Wall Street, Main Street Bullish on Gold

Wall Street sentiment regarding gold’s price trajectory is shifting to the upside in considerable fashion, joining the already-optimistic Main Street traders. The Kitco gold price survey from last week showed 69.2% of Wall Street analysts surveyed expecting prices to move higher this week. No bearish votes were cast, with the remaining 30.8% predicted a neutral or sideways-only price movement.

Main Street was a bit more evenly spread, though still heavily favoring the upside. Nearly half of retail investors surveyed (49.6%) forecast higher prices this week, while 25.8% were bearish and 24.6% were neutral.

Despite little price action last week, analysts generally agree that a move to the $1,750 support level will be met with a strong correction, while a breach of the $1,800 level will continue to establish new highs for the metal.

Specific analyst commentary on gold in the short term

Marc Chandler, managing director at Global Forex, views a scenario where gold touches $1,750 before bouncing to the $1,800-1,815 range this week as the likeliest.

Kitco’s senior analyst Jim Wyckoff also finds the range important, noting that a move above $1,800 would set the trend for prices to go higher.

RJO Futures senior commodities broker Daniel Pavilonis is especially focused on a close above the $1,820 level. If it happens, Pavilonis thinks the market could be in for some explosive price action. Besides gold finding consistent support above the 200-day moving average, Pavilonis also said that the latest bout of strength in the U.S. dollar appears to be exhausting.

Colin Cieszynski, chief market strategist at SIA Wealth Management, is also notably bullish on gold. Cieszynski pointed to strong technicals as a reason to believe that gold might be getting ready to break out from the aforementioned range and continue moving up.

How is recent news affecting gold?

In general, the lack of any notable rise in gold price has been attributed to mixed signals from the Federal Reserve and corresponding data. The dollar continues to hold ground amid both peak inflationary expectations and rising inflation across the board. The latest data reports were likewise a mixed bag, with better-than-expected U.S. non-farm payrolls being met with a rise in unemployment.

The data still fell short of optimistic forecasts, however, and both Treasury yields and the greenback fell after the report. Analysts also noted that a lower trading volume on Monday due to the 4th of July holiday in the U.S. could result in some additional delays before gold finds a spot above $1,800.

Short-term vs. long-term views

Although analysts do enjoy attempts to predict the future, if you don’t work in the financial news industry, you’re probably better off keeping your eye on the horizon. When you look at gold’s performance over time, that’s when it really begins to shine.

In Russia’s Sovereign Wealth Fund, the Dollar’s Out and Gold Is In

In Russia's Sovereign Wealth Fund, the Dollar's Out and Gold Is In

The tale of Russian gold purchases has taken yet another interesting turn that might, at first glance, be difficult to decipher. After spearheading central bank gold purchases year after year in an almost boastful fashion, as if to remind Western interests that sanctions imposed on the nation can only accomplish so much, it ceased all purchases last March.

Its central bank gave a vague statement and has made no official purchases since then, only making two small sales. It was quite the shift from purchasing gold bullion in double-digit tonnage every month, but nonetheless left the country with the fifth-largest sovereign gold stockpile in the world, amounting to 2292 tons.

Russia’s National Wealth Fund

When people talk of sovereign gold stockpiles, they almost invariably refer to the amount of gold owned directly by a national central bank. Yet just as Russia so often blurs the line between public and private business, it appears that the same effect is happening with its national fund allocation. The $185 billion National Wealth Fund (NWF) is the latest edition of Russia’s state wealth fund. It has changed names since its introduction in 2004, but its focus was always on having a diverse portfolio that would protect Russia’s state budget against oil price fluctuations and secure the nation’s pension fund.

In December 2019, Russia’s Finance Minister Anton Siluanov made a statement that the fund should invest in gold due to the metal’s reliability. In November, the Russian government came up with a proposition that would allow the NWF to buy and store gold, and on May 21, an official announcement was made that the fund was greenlighted to do just that. The gold, unsurprisingly, will be stored with Russia’s central bank.

Where does the money come from?

The NWF is similar to the sovereign wealth funds owned by many nations who enjoy budget surpluses. Norway, China, and Abu Dhabi currently place in the top 3 for fund balances. The concept is simple: money in a sovereign wealth fund gets invested like a pension or an endowment, with profits accruing to the fund (and, by extension, the nation).

Like Norway’s and Abu Dhabi’s funds, the Russian sovereign wealth fund takes its seed capital from the nation’s oil industry. Any Russian oil revenue that isn’t allocated to the federal budget goes to the NWF, and the NWF spends it on a wide variety of assets.

Perhaps the worthiest of mention here are foreign exchange and foreign debt securities, which will likely lessen in favor of gold and precious metals over the following months and years.

Last year, gold officially become a bigger component of Russian reserve assets than U.S.-dollar denominated assets. It has since continued to de-dollarize amid risks of sanctions from both the U.S. and the European Union.

Gold’s popularity as an asset

Various nations that have purchased gold officially over the past few years cited the metal’s utility as a tool for sovereign influence and a universally-accepted store of value, despite having no immediate threat of sanctions unlike Russia.

In short, the new legislation means Russia can continue hoarding gold and dumping dollars under the guise of sound portfolio management. While the NWF issues supposedly accurate allocation reports, the same can’t be said of the State Fund of Precious Metals and Precious Stones, another government branch that does not publish reports on its gold reserves. As sovereign nations open up about the importance of owning gold to maintain clout on the global stage, Russia now has three different investment vehicles through which it can increase its bullion stockpile and lessen dependence on foreign assets.

Gold’s Heading Up for Many Reasons. Here’s the Weirdest One

Gold's Heading Up for Many Reasons. Here's the Weirdest One

After months of sideways price action, gold appears to have resumed its uptrend, breaking out of its range and hitting a high just short of $1,890 during Friday’s trading session. With upwards momentum looking strong and the 200-day moving average passed, some are wondering what caused gold’s breakout after a fairly tepid few months. This time, the usual suspects are joined by an unusual trend that just might be the primary cause…

Inflation and dollar weakness

According to the World Gold Council, the price rise is the result of inflationary concerns, with the CPI jumping by 4.2% year-on-year in April. Commodity prices are soaring, which drives up the producer price index and increases consumer costs on virtually everything from food to homes.

In addition, the trillions of newly-printed dollars are still a primary concern for most investors. Thanks to three rounds of free money, spending has recovered so a lot of those dollars are chasing a limited quantity of goods, driving prices higher. with inflation already materializing on one front and warnings of a lot of more to come on another.

JPMorgan reports big institutional investors dumping “digital gold” for the real thing

Some experts view the recent cryptocurrency “correction” (which seems like too subtle a word to describe a 7-day 40% plunge) as the real reason behind gold’s recent price gains. Bitcoin was praised as an inflationary hedge due to its fixed supply and, in fact, was invented primarily as a counterweight to central bank malpractice after the 2008 financial crisis.

But the recent double-digit percentage correction in the market reminded investors looking for a hedge that the crypto market is, and has always been, a highly volatile one.

While bitcoin provides hedging utility, its price volatility absolutely boggles the mind. This is where gold emerges as a familiar, reliable and most of all stable asset, as an overnight double-digit percentage pullback would be virtually unheard of in the well-established market. That’s probably why JP Morgan’s report of big institutional investors choosing stable hedging with gold over volatile hedging with bitcoin.

That might be a partial explanation of our unusual fund flow report…

Paper gold funds bucking the price trend

As seen on Chief Investment Officer, Tom McClellan offers a curious take that even the keen analyst might have overlooked.

McClellan notes that spikes in gold prices are usually followed by massive inflows into large gold funds. It’s the same pattern you see in stocks: once a stock has proven it’s a winner by going up, everyone wants a piece of the success, so they buy. It’s a human reaction. It’s the closest thing to a law of investing there is.

This time is different. Despite a major upward move in gold’s price, two of the biggest gold funds (SPDR Gold Shares, GLD and iShares Gold Trust, IAU) have not gained buyers. They have not seen the kind of cash inflow that always seems inevitable when prices go up. What’s going on?

McClellan interprets this as investors still not having woken up to the goings-on in the gold market, perhaps due to the hectic economic situation affecting all other markets. This could also be seen as investors uncharacteristically holding out for further developments before making a move, which doesn’t sound bullish on its own.

McClellan explained the potential benefits of the situation this way:

The uptrend is not mature yet. It still has more to go, before we get to the point when everyone starts piling in.

“Piling in” in this case means buying paper gold, which drives up gold’s spot price, which in turn tends to attract paper gold buyers… Basically the kind of feeding frenzy that has the potential to send prices skyrocketing.

Given that gold has already broken out to the cusp of $1,900, the kind of acknowledgment and subsequent piling into funds that McClellan hints to would quickly translate to fireworks in the gold market.

If McClellan’s idea that gold’s uptrend has just started gaining traction towards $1,900, on the way to its previous all-time high, the smart investors who hold gold have plenty to be excited about.

Big Gold Purchases By Central Banks: Bad News for U.S. Dollar?

Central Banks Buying Gold - Bad News for U.S. Dollar?

According to data published by the World Gold Council, global central banks haven begun adding to their gold stockpiles. In February, the following nations added to their reserves:

  • India (11.2 tons)
  • Uzbekistan (7.2t)
  • Kazakhstan (1.6t)
  • Colombia (0.5t) 

The only notable sale of central bank gold reserves was from Turkey at 11.7 tons.

Why did Turkey’s central bank sell gold?

Nations hold gold reserves as a sort of collateral against their sovereign currency. Turkey’s currency, the lira, had a horrible day on March 22 and lost 20% of its value. In response, Turkish President Recep Tayyip Erdogan made an appeal:

I ask my citizens to invest their foreign currencies and gold in various financial institutions and bring [those assets] into the economy and production.

via BalkanInsight

Put simply: if his people listened to Erdogan’s plea and swapped all their U.S. dollars and euros and precious metals for lira, demand for lira would increase. And therefore prices would increase. It’s reasonable to assume the Turkish central bank sold gold in order to buy lira in an effort to prop up the beleaguered currency.

Note that even after this sale, Turkey has a respectable 716 tons of gold reserves.

What other central banks are buying gold?

More recently, central bank gold purchases have been in the news.

This month, Hungary announced its intention to triple its gold reserves “to help stabilise the economy amid the COVID-19 pandemic, inflation risks and rising debt.”

Back in March, Poland decided to buy 100 tons of gold.

The Reuters article even hints at a possible explanation…

Over the last decade central banks, particularly in Eastern Europe, the Middle East and Asia, have stepped up purchases of gold, often seeing it as a way to reduce reliance on assets such as the U.S. dollar.

Reuters

Is central bank gold buying a bad sign for the dollar?

Not necessarily. Most central banks around the world hold a combination of foreign exchange reserves (a collection of the world’s most-used and/or most-stable currencies) in bonds as well as gold or other precious metals.

So, in a sense, any government that issues bonds is competing for central bank customers. For the most part, only the most common currencies are considered useful as foreign exchange reserves. According to the IMF, the top five are:

  • U.S. dollar
  • euro
  • China’s renminbi
  • Japan’s yen
  • U.K.’s pounds sterling

So anytime the U.S. Federal Reserve, the Bundesbank or the Bank of England issues a bond (a promise to pay later for cash now, or an IOU), there are other global central banks who are potential customers. Along with them, what you might think of as the “traditional” customers for bonds like pension funds, insurance companies, individual savers, etc. also want bonds. More customers means more demand, and more demand means higher prices.

But what if some of that central bank demand is diverted out of bonds, into gold?

That means a diminished demand for bonds. That means a slight upward pressure on the interest rate issuing banks must offer to attract buyers. Which makes deficit spending more expensive. Sovereign bonds can also lose value to inflation.

Further, as mentioned in the Reuters article, gold isn’t subject to counterparty risk. There’s always the chance, however small, that a nation might choose to stop paying its bond-holders. (This is called a default, or a sovereign debt crisis, and they happen fairly regularly.)

There’s zero chance of physical gold defaulting. Once those gold bars are locked up in a nation’s central bank vaults, it serves as a permanent store of value.

In an important sense, when a central bank chooses to add to their gold reserves, the decision says, “We’re diversifying our country’s savings out of currencies we don’t control, into an asset class that we can trust.”

A Stagflation Flashback Ahead? Keep an Eye on Gold

Stagflation flashback ahead? Keep an eye on gold

Ever since gold’s correction from August’s high, market participants have been watching closely as to whether we will bear witness to a similar scenario to the one between 1971 and 1980. Back then, economic conditions eerily mimicked what seems to be on the horizon today: a stagflation environment propelled by low growth, rising prices and excessive interest rates.

That bout of stagflation came, most would agree, as the result of the U.S. dollar being untethered from gold. The metal subsequently jumped from its $35 tether valuation to $200, corrected to $100 and then soared far above to reach $850 within a few years’ time. What might we guess, based on this historic pattern?

Today there’s no tether-based gold valuation. Recent calls for a return to a gold standard or a similar tangible backing of the dollar from various corners have very much driven that point across.

The Federal Reserve maintains inflation is running well below its stated annual target of “around 2% on average,” and that they know this because their measurements are accurate. We are forced to wonder how that’s possible, given the historic amount of money printing. Even such a luminary as former U.S. Treasury Secretary Lawrence Summers fears the nation could be facing its biggest inflationary problem in 40 years.

Wealth preservation and inflation concerns

Reports from various government mints show that precious metals purchases have maintained their record-shattering pace over the past few months ‑ regardless of fluctuations in price. In other words, buyers seem very much concerned about long-term wealth preservation and aren’t deterred by momentary corrections.

And it appears they have every right to be.

With the debt bubble ballooning and government deficit perpetually increasing, many wonder how and when the Fed will choose to address these issues. In the absence of a debt default (which is viewed as highly unlikely), the remaining options boil down to spending cuts, tax increases or allowing inflation to run its course.

Spending cuts mean austerity, less services for taxpayers, less money for special interests. That’s simply not a politically tenable path.

Tax increases could raise funds for federal coffers. On the other hand, taxing the wealthy all too often results in nothing more than emigration to more wealth-friendly nations. To raise taxes on a thing is to risk driving it away.

That leaves us with inflation, which seems to be the Fed’s favored option. And it is almost certainly already underway.

Inflation destroys debts

The Fed’s comments indicate the official sector has braced for a public response over claims they wouldn’t oppose inflation running past the desired target. Given how the Fed measures inflation, it seems citizens are especially vulnerable to being caught by it off-guard in the form of a sudden spike in consumer prices.

On this topic, Indonesia’s 30% increase in tofu prices since December, Russia’s 60% rise in sugar prices over the last year and a 20% spike in grain prices are worrying examples of how consumer goods can shoot up both suddenly and unevenly.

The market response to a high-inflation environment is fairly well laid-out. An initial boost of the stock and real estate sectors is followed by erosion of purchasing power, together with excessive monetary demand, a loss of confidence in fiat currencies and an ongoing increase in money printing.

Look familiar? Initial boost in stock and real estate? Check. Erosion of purchasing power? See food inflation data above (or recent stories about manufacturing concerns over steel or lumber prices). Excessive monetary demand? Yes in capitals; businesses are issuing new debt at a record page. Might the boom in bitcoin and other digital currencies have something to do with the loss of confidence in money backed by nothing but faith? Increased money printing: yes, again at record levels.

What does the future hold?

It should come as no surprise that the public have flocked to precious metals, with the latest social-media driven rush to silver being perhaps the first of many warnings.

When inflation does hit in such a way that not even distorted CPI can disguise it, the small subset of the public who have invested in gold and silver have managed to preserve the majority of their wealth. The rest scrambled to secure any sort of hard asset with their rapidly-depreciating currency.

Investor Survey: Silver to Outperform in 2021

As part of its 2021 Outlook feature, Kitco surveyed a total of 1,015 analysts and investors regarding their outlook for precious metals heading into the new year. While the participants were bullish on commodities across the board, silver emerged as the standout forecast as has been the case for much of the previous year.

Why silver looks bright in 2021

56% of the participants, or 568 Main Street investors, named silver as their top metals investment and said that they expect it to outperform gold. Both gold and silver have done exceptionally well over the past 12 months, but certain nuances to the silver market have caused some forecasters to call for a price of as high as $50, up from current levels of around $24. A major part of this bullish sentiment has to do with an economic recovery and an overall push towards green infrastructure, one that was already prominent in Europe and Asia but should now gain traction in the U.S. as well.

The reinvigorated manufacturing sector, boosted by trillions of dollars of monetary stimulus, should help spur a bid for silver that could strain supply as the metal’s production is more complex than that of gold. Besides demand for silver in hydrogen power cells and other green technologies, silver’s investment component will also keep the metal on the same track that has seen prices more than double from their March lows, said the participants. The aforementioned stimulus has made inflationary expectations as high as they have been in recent memory, and few market watchers aren’t bracing for a significant rise in inflation over the next few years.

The many reasons gold will continue to shine

The same inflationary concerns should likewise help gold reclaim the $2,000 level sometime next year, up from its current level of around $1,900. Over the past year, there have been plenty of big banks and top names in finance who predicted that 2021 would see gold posting a new all-time high, above the current one of $2,070 set in August.

Besides inflationary concerns, a persistent low interest rate environment should also remain a major driver of gold prices. Interest rate slices started pushing gold prices up in the summer of 2019, and the surveyed participants expect low or negative interest rates around the globe to stick around until at least 2023. The dire straits that the sovereign bond market has found itself in has caused portfolio managers to reassess their stance, with many now beginning to view gold as a better alternative to hedge against stocks. While silver took the center stage of the survey, 10% of participants, or 140, nonetheless stated they expect gold to be the best performing asset this year.

Promising prospects for platinum and palladium

As for other precious metals, participants in the survey said they see platinum outperforming palladium by a slight margin in 2021, despite the latter’s shrinking supply and recent climb to all-time highs. Like silver, platinum has a strong industrial component and its price ties heavily into economic strength.

Despite Comparisons, Gold and Bitcoin “Fundamentally Different” Stores of Value

Despite Comparisons, Gold and Bitcoin Fundamentally Different Stores of Value
Freepik images

Both gold and Bitcoin offer a way for savers to preserve wealth from inflation. Despite the recent Bitcoin frenzy that generated many comparisons between Bitcoin and gold, see why only one of these assets lets its owners sleep well…

The unprecedented levels of panic and uncertainty this year have brought forth a push for safe-haven assets that is likewise difficult to match. Gold posted consecutive all-time highs, pulling other precious metals along the way, as it climbed to $2,070 in August amid risk aversion and red flags from all corners.

The drive to find a safe-haven to not only store wealth but also protect one from various downturns has also reinvigorated the cryptocurrency market, bringing Bitcoin not too far off from its peak of nearly $20,000, last seen in December 2017. Three years ago, the comparisons with Bitcoin and gold were just as present as today. Writing on FoxBusiness, Jonathan Garber speaks with many analysts who argue that both assets hold no counterparty risk and offer investors a unique diversification opportunity.

Gold and Bitcoin “fundamentally different”

Yet as tempting as it may be to compare the two, they remain fundamentally different and will continue to fulfill different roles. As Peter Schiff, CEO of Euro Pacific Capital notes, Bitcoin’s primary purpose remains that of a currency, or rather an alternative to fiat ones. The token was created in the wake of the 2008 financial crisis to offer people a method of exchange that would be free from money printing and other forms of central bank manipulation.

Although many have since grown to view it as a store of value, Schiff points out that Bitcoin remains fundamentally tied to its currency status. Unlike gold, it doesn’t play an important part in jewelry and manufacturing, and its flexibility and utility are largely tied to the virtual sphere. In contrast, gold requires no internet connection or validation to either be used as payment, purchased or traded.

Ray Dalio, founder of the $98.9 billion Bridgewater Associates fund whose frequent outperformance has much to do with its big bets on gold, also hesitates to make comparisons between the two assets. In a recent tweet, Dalio highlighted Bitcoin’s infamous volatility and said that it makes the case for the token’s preservation of purchasing power more difficult to make.

Bitcoin’s volatility vs. gold’s stability

Bitcoin’s price swings may have brought gains to many, but its tendency to have abrupt downturns has caused just as much worry. While the top crypto has posted a nearly full recovery from its 2018 low of $3,200, such falls have and continue to trouble investors with a long-term outlook.

On the other hand, gold’s stability has always been one of its hallmarks, if not the most important one. Whereas 10% oscillations in the price of Bitcoin are a frequent overnight phenomenon, gold is exceptionally resilient to sharp downturns, yet also able to post massive gains during times of crisis. Even in its most bearish periods, gold continues to be an asset no investor would mind owning. Particularly in the case of physical gold, one can liquidate the asset at any moment and in any corner of the world without issue and receive most of their initial investment, if not more. This has been the case for centuries, and it’s difficult to envision a different scenario.

With a little over a decade under its belt, Bitcoin has plenty of miles to walk before it can offer its holders anything close to the sense of safety and security that gold does.

Gold’s Rally Just Getting Started, Say Numerous Analysts

Gold's Rally

Currently, prices are moving up alongside those of stocks, but a bevy of analysts agree that the yellow metal still has plenty of upside. Find out why here.

As U.S. and Chinese stocks recover after massive amounts of stimulus was pumped into both economies, some are surprised to see gold doing just as well as equities. Although the two have traditionally had an inverse correlation, it has been severed for some time now.

Boris Schlossberg, managing director of FX strategy at BK Asset Management, pointed out the differences between the respective rises in gold and stocks. In the case of the latter, the equity market’s upswing seems to rely heavily, if not exclusively, on expectations that stimulus programs will translate to corporate earnings and pave the way to an economic recovery. Prior to the pandemic, many analysts were tapping their feet as they waited for a correction in the longest-running bull market in equities’ history while warning that valuations seem to be heavily overblown.

In contrast, gold has been on a steady rise since summer last year, when central banks around the world began slashing interest rates. While a major factor, gold also had plenty of other drivers that facilitated a slew of price gains until March, when the metal briefly dipped before going on to breach $1,800 for the first time since 2011. Although the pandemic was a big reason for this move, and persistent concerns about the coronavirus are fueling gold demand, there is much more to be said about gold’s gains over the past year.

Michael Novogratz, CEO and chairman of Galaxy Digital, believes the current macro environment is a perfect one for gold to breach its all-time high. Although Novogratz took note that investors have been quick to jump on optimistic sentiment, the CEO believes things will ultimately boil down to the unprecedented amount of money printed by the Federal Reserve and other central banks. With gold having traditionally acted as the primary guard against inflation and a way of preserving wealth, Novogratz expects the metal to move past $1,950 fairly soon. The price target doesn’t look too far off, as gold has been touching and passing the $1,810 level throughout the previous trading week.

Michael Howell, CEO of Crossborder Capital, expressed very similar opinions, stating that investors should look for diversification and pegging gold as the one asset that is guaranteed to keep climbing. Like Novogratz, Howell said that stimulus programs are the best news that the gold market could receive, forecasting a climb to $2,500 within the next 18 months.

Along with being exceptionally well-positioned in both the short and long-term, a deeper analysis suggests that gold’s price should already be much higher. Peter Boockvar, an analyst at Bleakley Advisory Group, places gold’s inflation-adjusted all-time high at around $2,600 when taking into account the metal’s 1980 high of $850. Boockvar, too, believes this price adjustment is well on its way.

Is the Fed About to Become a Major Gold Buyer?

Due to a new round of fiscal stimulus and waning global confidence in the dollar, Guggenheim’s Scott Minerd argues the Fed may resume buying gold in a big way.

In a recent note, Scott Minerd, chief investment officer of Guggenheim Investments, outlined a possible scenario that could manifest as a result of the Federal Reserve’s massive pandemic-related stimulus. The U.S. dollar has held a tight grip on its status as a global reserve currency over the past few decades, yet recent years have seen talks of that status potentially being usurped by another sovereign in the not too distant future, with the Chinese yuan as perhaps the most aggressive candidate.

Minerd doesn’t believe that the greenback’s place as the reserve currency has been placed into question so far, but he already sees concerning signals in the form of the dollar losing its market share. These are a clear result of the Fed’s attempts to deal with a massive government deficit while also staving off a recession.

In his note, Minerd expanded upon a sort of vicious cycle that the Fed could soon find itself in. As the CIO explained, the Fed’s current rate of asset purchases is outpacing the rate of bond issuance, and the central bank is likely to try and solve this problem by upping its asset purchases to a massive $2 trillion annually.

Although the Fed’s recent pumping of trillions of dollars into the economy represented the biggest stimulus to date, Minerd thinks that an official (and even greater) quantitative easing (QE) program is on the way. With a budget deficit exceeding $3 trillion and the Fed’s commitment to boost the economy at any cost, Minerd expects the central bank to keep interest rates zero-bound for a minimum of five years, if not longer.

Needless to say, any environment of low or negative interest rates greatly benefits gold, and the yellow metal has been reaching all-time highs in numerous countries whose central banks have adopted similar policies. But there are more reasons why gold could be the refuge investors need moving forward. A commitment to zero rates, especially over a protracted period of time, would likely raise inflationary expectations and potentially pave the way for a sudden spike in inflation.

Along with weakening the greenback on their own, intrusive measures such as these could reduce confidence in the dollar and intensify speculation in regards to its place as the reserve currency. In return, the Fed could attempt to offset its risky policies by accumulating even more gold, despite its reserves already far exceeding those of any other central bank. As Minerd notes, the historic tendency of sovereign nations to hoard gold in order to maintain economic leverage is well-documented, and Minerd would not at all be surprised to see the Fed becoming a major gold buyer in the near future to avoid losing dominance on the global stage.