Analyst: Gold Just 12 Months Away from New All-Time High

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: WisdomTree’s case for $2,500 gold, Peter Schiff has some choice wording regarding inflation, and how China is using gold to defend the yuan.

Analyst predicts new all-time high for gold (within the next 12 months)

WisdomTree’s Nitesh Shah, head of commodities and macroeconomic research, analyzed the bullish and bearish scenarios for gold in the year ahead. It seems that the former is a little more believable. Shah believes all it will take for gold to reach $2,225 next year will be a meeting of, “consensus expectations.”

And, interestingly, these consensus expectations don’t look beneficial to today’s gold price at first… Shah lists the factors: continued decline of inflation, a weakening of the U.S. dollar (as a result of a pause in the Fed’s rate hikes) and the accompanying fall in yields.

We do find ourselves in some strange times when gold’s bullish case involves inflation cooling… Shah explains that decrease in inflation can only really be temporary. See, inflation is a necessary component to managing the U.S. federal government’s debt load (the largest debt mountain in history). Gold is a waiting game, to be sure: many a pundit is on record stating that the slightest hint of a return to the 15-year track record of money-printing and quantitative easing by the Fed will send gold prices flying.

But when? Shah thinks a rate cut as early as Q3 of this year would set the stage for gold at $2,500 next year.

To be fair, Shah also outlined a bearish scenario where gold could fall as far as $1,710/oz. Not that bad compared to the upside! Shah thinks this would only happen if the Fed went too far, “over-tightening” and pushing the inflation rate below 2%.

Hmmm… what are the odds of that happening? Somehow, I just don’t see Jerome Powell worrying about going too far in the inflation fight. (He’s not much of a scrapper.)

With an increasing number of experts cautioning that higher inflation is a permanent fixture, this doesn’t sound like a particularly likely scenario.

Still, that’s an awful lot of upside for those of us who’ve diversified our savings with gold…

Peter Schiff: Lower-than-expected CPI is the real “transitory” inflation

“Transitory” was Jerome Powell’s preferred description of the 50-year record spike in inflation. Oh, how I pounded my keyboard over his cavalier, dismissive attitude…

Peter Schiff remembers this as well as I do. His explanation of why lower than expected inflation is the real “transitory” element. First, let me remind you that even the official inflation rate, what Wolf Richter calls the “lowest lowball inflation measure that the U.S. government releases,” is still well above the Fed’s 2% target. And, of course, it’s only there because we’re in the middle of a massive tightening cycle, with interest rates not seen since 2007.

Schiff says that the optimists (especially the White House) are quick to call this a win for the Federal Reserve.

Just like in the 1970s. Now, today is nothing like Volcker’s time as Chair of the Federal Reserve. For one thing, the U.S. government’s debt has grown 75-fold since the 70s. (I checked the math three times.)

That’s another way of saying, even modestly higher interest rates are simply not sustainable.

And that’s just one part of the equation. It’s well-known that the Fed “adjusted” its gauges right as it poured in trillions of dollars into the economy. I have much greater confidence in the 1980s inflation measurement methodology, as championed by John Williams of ShadowStats.

Trusting that “official” CPI is an accurate inflation measurement is a lot like believing in Santa Claus. After all, we can’t know Santa isn’t real – extremely unlikely, perhaps. On the other hand, we have John Williams’s massive body of work to explain to us why actual inflation is (and has been) much higher than reported. See for yourself.

Then we get to U.S. dollar strength, regarding both gold price and foreign currencies. Schiff says even the dollar’s waning strength is “manufactured,” but that’s not necessarily a critique of the greenback. After all, name any fiat currency whose value isn’t manipulated, manufactured and pumped up by its issuing government?

Schiff says that just as the U.S. dollar began to climb before the hiking cycle, it has already started to fall precipitously – even though there hasn’t even been an official pause in rate hikes, let alone a reversal. It’s because markets price in these events well in advance of their occurrence. The U.S. dollar’s purchasing power, falling as it is right now, tells us that “the wisdom of crowds” believes inflation will rise once again.

We could see the U.S. dollar falling in purchasing power even if the Fed continues with its rate hiking program. Loosening monetary conditions will only accelerate the fall that’s already happening.

Schiff doesn’t address the global de-dollarization drive – excuse me, the “natural urge to diversify” out of dollars. I think that’s a mistake. When the dollar becomes less popular, demand for dollars slumps – and there’s no shortage of supply. Basic economics tells you what does to the purchasing power (or “value”) of the dollar.

If you see the connection, you’re way ahead of the geniuses in the White House, who think the best way to solve all America’s problems is to hand fat stacks of cash to everyone. With such buffoons in charge, is it any wonder the world is less interested in owning dollars than ever?

The sordid tale of Shanghai Gold Exchange price manipulation

The “gold price fix” is called that for a reason. Everyone involved has been accused of playing games with the gold price (usually pushing it down). At least the Shanghai Gold Exchange (SGE) and its pals at the People’s Bank of China (PBoC) aren’t even bothering to cover their tracks.

Jan Nieuwenhuijs delivers an in-depth explanation of the shenanigans around Chinese gold price manipulation. Some of this you may already know. For starters, central banks don’t really want you to own gold. By owning gold, you’ve at least partially escaped their wealth destruction policy (that’s a less-politically-correct name for inflation). Furthermore, any local surge of gold demand is a form of capital flight, which by definition weakens the local currency.

China’s yuan, whether physical, digital or simply imaginary, remains a very risky currency. It doesn’t have the stability, liquidity or history to be a viable competitor to the dollar. Despite its role as the world’s #1 manufacturer and exporter, China’s economy is less than healthy at the moment.

Nieuwenhuijs explains the multiple instances since 2016 when the PBoC restricted imports of gold to China – which caused SGE premiums to rise in comparison with other gold markets. A textbook example of capital controls. Nieuwenhuijs notes that China’s official sector thinks private gold ownership is a good thing – so long as it doesn’t go “too far.”

As you’d expect, these arbitrary capital controls cause chaos. Sometimes Chinese gold is relatively cheap when prices rise — because exporting gold mined in China isn’t allowed. These rules only apply to private purchases, of course. Even during periods when gold importing is banned for the little people, the PBoC is free to expand its own gold reserve.

Nieuwenhuijs says that this price manipulation has introduced instability to the Chinese gold market, and instabilities in economics always get resolved… He wonders whether the average Chinese citizen might become frustrated with gold because the PBoC seems determined to limit its price surges?

On the other hand, the very reason the average Chinese citizen wants to own gold is because of the PBoC. In China, gold is the only form of money that’s safe from surveillance, right? An ounce of gold is a pound (or more!) economic freedom! Manipulating the gold price just reminds citizens that the entire nation’s economy is rigged.

In other words, the more the PBoC tries to keep gold down, the more demand I expect to see from even the most hard-line, true-believer communist citizens.

2023, Featured, gold price, inflation, jim rickards