GOLD UP SHARPLY AS DOLLAR DROPS
Gold jumped nearly $40 an ounce this morning as speculation over further Fed tightening and recession permeates the market.
Silver is approaching $24, and platinum is up $33 At nearly $1050 an oz.
The dollar dropped sharply as inflation was moderately lower.
The current rate came in at 7.15. But before anyone gets excited, let’s remember that the Feds target is 2%. That’s a long way from where we are.
Right now, the story in the short term is the dollar strength.
One strategist I read last night says that once markets realize that global inflation will remain high despite monetary tightening-higher interest rates. He believes gold could reach $4000 in the next 12-18 months.
He points out three factors that could contribute.
One, central banks could hold less foreign exchange reserves in the name of self-sufficiency. He calls this a “war economy mentality”.
This would be good for gold as central banks hold less of their reserves in dollars and more in gold.
Two, continued deficit spending on projects such as energy transition. Again, we are already seeing this as our government continues to spend billions it doesn’t have on green energy projects while ignoring the need for fossil fuel.
Three, the potential for a global recession in 2023 would force the banks to create liquidity. That means lower interest rates and an infusion of money into the economies.
CENTRAL BANKS BUYING
MORE GOLD THAN ANY TIME SINCE 1974
Even though central banks are all about fiat money they are buying gold at the fastest pace in history. What do they know that they aren’t sharing?
Central banks have purchased a record 400 tons (THAT’S ALMOST 13,000,000 OUNCES) in the 3rd quarter alone.
In fact, the central banks have not held this much gold since the end of Bretton Woods in 1974. That was when the dollar was officially unpegged from gold. Until that time foreign banks could cash in dollars for gold at a fixed price of $35 an ounce. That was the real reason that the world uses the dollar as a reserve currency. Since then, it’s almost as if the world was on autopilot holding dollars that were backed by nothing. A fact that is becoming more and more obvious as out debt grows, and other countries are balking at paying for oil with dollars.
I am not in the habit of predicting where the price of gold is headed in the short term. Flip a coin.
However, a lot of factors seem to be aligning that make me believe gold’s time is coming soon. Most of my clients don’t buy gold to get rich but its always nice to buy before a big move. I believe that those who have given up on metals because they have been slow to respond to inflation will be deeply disappointed.
- Nick Grovich