5 Forces Driving Gold and Silver Higher in 2023

Now that the debt ceiling drama is behind us, what macroeconomic forces are driving gold and silver prices? It might be easier to answer the question, “What forces AREN’T driving prices?” Between recession, the ongoing banking crisis and the Federal Reserve, gold and silver will likely surge in the months ahead…

5 Forces Driving Gold and Silver Higher in 2023
Photo by Otnaydur
Photo by Otnaydur

From Peter Reagan at Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Five reasons gold and silver will rise this year; global central banks still top gold buyers; and forecasts for $3,000 gold and $50 silver in the near-term.

5 reasons why precious metals will rise in 2023

Gold’s fall to $1,950 from $2,000 level wasn't exactly precipitous, especially considering how much gold has gained over the past few months. It also wasn't unexpected, with numerous pundits saying that there's going to be a lot of turbulence before the $2,000 level is claimed proper.

Still, it pays to go over why gold and silver remain as upwards-positioned as ever, with Rick Mills' 5 reasons why the bullish case for precious metals hasn't weakened:

#1 Recessionary woes: As we can't seem to get enough of mentioning, hiking cycles are recessionary in nature. And with the last cycle of this magnitude dating back to the 1970s, it's common sense to expect another recession to come as a result of the Federal Reserve's actions. JP Morgan's analysts noted that the theme of a long recession has become prominent in recent months, along with long gold.

#2 Banking crisis worsens: There's definitely a bit of a "where are we now?" with the banking crisis. Has it gone away? Hardly, considering there are still well over $600 billion in unrealized mark-to-market losses on banks’ balance sheets. The banking crisis has certainly gone quiet, for now. The bank collapses of 2023 haven’t just been much larger than those of 2008, they’ve also been much much faster, going from business-as-usual to outright crisis in a day or two.

#3 The Federal Reserve: The Fed certainly deserves a mention of its own on this list due to the position it's in. In so many words, it's almost impossible for the Fed to act from this point onwards without boosting gold prices in some way: either money-printing which boosts inflation and pushes gold higher on a tide of debased currency, or money-tightening which constricts credit, crushes banks and pushes gold higher on a surge of safe-haven buying.

#4 Rising gold demand: The story of how central banks bought the most gold since 1950 overshadowed the 5% year-on-year increase in coin and bar demand globally. The two are likely to remain coupled stories. Central banks seem increasingly unabashed in touting gold's benefits over the very currencies they issue, which obviously won't go unnoticed.

#5 Disappointing supply picture: The supply picture is reason enough to expect higher gold prices. Last year's gold demand of 4,741 tons fell just short of overall supply of 4,755 tons. However, it was an 18% annual demand increase on one hand and a 2% annual production increase on the other. Metals Focus' Philip Newman says that the silver market could become one of deficits, having posted the second consecutive one last year, of 237.7 million ounces. The Silver Institute thinks this might be the most significant deficit on record, as silver's supply is not nearly as prepared as gold's to handle a sudden increase in demand.

In other words, there's no one thing that needs to go right (or to go wrong) for the gold price to steadily climb for the rest of the year, at least, and to push silver up as well.

Global central bank gold-buying spree continues with Singapore’s buys 68-ton purchase

A recent analysis of Singapore's massive gold bullion purchases over the first quarter shows that there are more head-turners to the story than simply the weight itself. The latter figure is not to be dismissed: in the first three months of the year, Singapore's central bank bought a total of 68.7 tons of gold.

This placed Singapore ahead of other nations, including China, in first-quarter central bank gold purchases. This, of course, only includes nations that officially reveal their gold purchases and whose figures are full-disclosure. The suspicion that China is but one of many countries quietly stockpiling gold isn’t exactly an absent one.

But there are other points of interest that have sparked curiosity. Despite being the 24th-largest sovereign holder of gold bullion, Singapore is one of the few nations that don’t reveal where the bullion is actually stored. Even countries like Russia store their bullion in publicly-known places. Ronan Manly, the author of BullionStar’s analysis, points to several email correspondences he has had over the past decade with Singapore’s central bank that formed a shroud of secrecy.

The central bank neit’er wants to share any details as to where the sizeable pile might be stored nor expand on its approach, much to Manly’s disappointment. In an email to the analyst, the bank actually said that gold doesn’t represent a significant part of its allocation, despite ending up as the top buyer for Q1 this year.

Some insight from Singapore’s private banking sector might shed light on the official counterpart’s reasoning, not just over the buying but also secrecy. Vishnu Varathan, head of economics and strategy at Singapore’s Mizuho Bank Ltd, might have indirectly given us an answer in a recent interview on Yahoo Finance.

Varathan, who was one of a number of experts mapping the BRICS trajectory moving forward, was fairly critical of the U.S.’ SWIFT weaponization over the Ukraine war. While not mentioning Singapore’s central bank himself, he noted that countries are going to grow more and more interested in protectionism in the aftermath. If we are truly seeing de-dollarization in favor of gold, Singapore might merely be an example of a nation taking a less trusting step forward.

John Doody: “This is why $3,000 gold and $50 silver are reasonable expectations”

John Doody, a precious metals expert with 20 years of tenure as an economics professor, joined Daniela Cambone to discuss why gold's trajectory remains solid. Doody is known for his forecast for $3,000 gold and $50 silver, targets he thinks are within reach in the next few years.

It's a forecast that he has previously issued and one he has stood by as new developments emerged. Doody takes note that gold's status as a supposedly non-interest-bearing asset is sometimes mentioned as one of its major downsides. Yet we find ourselves lamenting how gold is unable to hold $2,000 on the tail end of a 15-month hiking cycle.

In other words, gold has had the performance that it has despite suffering what Doody believes to be the worst it can in terms of headwinds. And now has to come the turnaround. Doody says that no gold bug should ignore historical analysis, specifically how gold acts when quantitative easing (QE) is unleashed. And after 15 months of tightening, the Federal Reserve isn't going to be able to resist printing money in order to make things easier. Namely, as Doody believes the situation we are in right now is far more akin to 2008 than many would like to admit.

Doody says that the Fed bailed out banks for 8 years after that crisis, and that we're gearing up for something similar right now. Here's the problem, though: the previous financial crisis wasn't nearly as inflationary in nature as this one. The crisis now is being caused by the tightening, the most aggressive of its kind in 50 years, and yet the tightening was a sort of emergency response to an inflationary crisis created by QE a few years ago.

It should unnerve any observer that we're discussing how the Fed is preparing to fix QE damage with QE within three years, and Doody says that the quicker the turnaround, the higher gold's jump will be. Doody and Cambone got into other things pertaining to the precious metals market, such as that gold might become a focal point of discussion in the 2024 election and Turkey's latest gold selling spree.

Commenting on the latter, Doody explained how Turkey is selling gold by the ton in order to meet growing consumer demand and balance their spiraling currency. No different than Russia liquidating some of its gold as the war broke out, the Turkey story serves as another, if somewhat unpleasant example of gold very much doing its job.

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