CIBC: We're Months Away From $2,000 Gold, $31 Silver

CIBC’s analysts assess the recent selloff in gold and silver and determined the underlying bullish factors driving gold and silver’s price rises are still in play. Here’s why they see gold to $2,100 in the months ahead…

CIBC Predicts 2000 Dollar Gold, 31 Dollar Silver Only Months Away
Photo by Jingming Pan

From Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Gold's on track to $2,100, the current state of the gold mining industry, and metal detectorist uncovers incredibly rare, Black Death-period gold coins.

CIBC: Gold is still going towards $2,000 and silver to $31

Despite the selloff that caused gold to drop by more than 5% within a week, Canadian bank CIBC is still optimistic on both gold and silver's prospects over the next few years. While the bank downgraded their average 2021 forecast for gold to $1,925, they expect the metal to average $2,100 in 2022.

Likewise, CIBC's analysts downgraded their average silver forecast for 2021 to $28 from $29, but said that the metal will nonetheless head onwards to $31 next year. Interestingly, the analysts emphasized that physical precious metals will dominate demand:

We expect demand for physical gold and silver will remain elevated, not only from traditional investors but also from a wider array of investors seeking a safe-haven option to hedge against volatility.

Regarding the recent fall in prices, CIBC's analysts explored the specific causes and concluded prices aren't likely to stay suppressed for much longer. The Federal Reserve clearly wants to ruffle its feathers and assume a hawkish stance to subdue inflationary threats. Frankly, the Fed's options are limited. Money printing has slowed in recent months. However, President Biden's $6 trillion spending plan would place the annual deficit at more than $1.3 trillion over the next decade.

In general, CIBC fully expects the overall environment of monetary stimulus and loose-money policies will last for a good, long while.

Furthermore, CIBC sees "real interest rates" (APY minus inflation) as an even bigger driver for gold. When real rates are negative, bond buyers lose money even after their bond matures. The analysts noted that gold has historically posted great performances regardless of headline interest rates, so long as real (inflation-adjusted) rates remain low. At the moment, the five-year real interest rate sits at -1.54% compared to an all-time low of -1.86% in May 2021. That is low.

The general consensus is, real interest rates aren't likely to budge regardless of the Fed's actions.

The bank is also highly bullish in silver, stating that while everyone cites silver's rising industrial component (for solar and green energy applications), investment demand will significantly contribute to price rises over the next two years.

How the mining industry is dealing with rising demand and various pressures

The mining industry continues to find itself in a less-than-optimal position. Crisis times have once again placed precious metals into focus, especially due to the unprecedented nature of events. While concerns over a complete economic meltdown, such as those seen last year, have somewhat abated, gold and silver nonetheless remain exceptionally well positioned.

Inflation expectations are at their highest in several decades and real rates linger in negative territory and, casting doubt on even top currencies such as the U.S. dollar and the euro. Investment demand in the metals as a hedge or even a source of returns has poured in from all sides, bolstered by industrial demand from EV and solar panel manufacturers.

In other words, there has been a massive surge in demand for gold and silver in a short period of time.

Here's the problem: miners, through no fault of their own, don't exactly function on an as-needed basis. Mining operations can take years to start, as can exploration projects, are incredibly expensive and both ventures are often stalled by various issues such as rights, licenses and expenditure.

The fall in gold and silver prices after 2011 massively cut mining expenditures. Many mines were forced to shut down because operations were no longer profitable. Current mining capital expenditure (the amount spent on expensive heavy equipment) stands at just 50% of 2011-2014 levels. And by 2011-2014, mining expenditures were already severely diminished. That's how much cost-cutting miners have had to endure.

To make matters worse, while gold and silver demand absolutely soared last year, miners had to cope with pandemic protocols and dial back their operations accordingly.

Prices are rising. Mining projects and exploration haven't increased much.

This disconnect between supply and demand will have an impact on both gold and silver prices in the months and years ahead.

Prospector unearths rare stash of gold coins from the Black Death period in England

While any stash of a centuries-old gold coins is expected to be of immense value, the latest find dug up by a metal detectorist in England involves two pieces that were already extravagant from the moment they were minted. While the coins were found in October 2019 near Reepham in Norfolk County, archeologists have only now finished their assessment of the coins.

A July 1357 example of a King Edward III gold leopard coin

A King Edward III gold leopard coin, struck in 1357. Only three of these coins are known to exist in world museums.

As the British Museum revealed through its PAS project, both coins depict Edward III and are related to his attempts to introduce gold coinage in England in 1344. One of the coins, a leopard or half-florin, is from a suspended mintage between January and July of 1344 that was halted because the coin was overvalued by weight. The other coin, which was issued sometime between 1344 and 1351, is from a new series that attempted to rectify the issue, even though the second coin weighs more than double the prior minting.

Helen Geake, a PAS officer, expanded upon why the find is especially remarkable. The leopard coins are so rare that there are only three of them in public museums today. This is partly because gold coinage during the time never circulated among with vast majority of the public. At the time, one or two silver pennies were the equivalent of a day's wage, and the most common coins in circulation were the halfpenny and farthing (1/4 penny). A single leopard represented about 36 silver pennies.

She said that whoever owned the coins was a very wealthy person, as the two coins were worth $16,700 in today's money. As for how the coins ended up buried, archeologists are uncertain whether this represents a deliberate stash or a simple lost purse.

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