Gold Hits New All-Time High (And Nobody’s Sure Why)

Gold hits yet another new all-time high: $2,186 at the moment

Bullion.Directory precious metals analysis 11 March, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Clearly, one of the main questions on everyone’s minds is where does gold take a pause. Saxo’s Ole Hansen has some optimistic predictions down the stretch. He says the bank’s official projection places gold at $2,300 in 2024, but leaves the window open for the metal to climb as high as $2,500 this year.

Those are some pretty lofty figures to expect in the near-term, especially given the relative doldrums of peak interest-rate hikes and central bank hawkishness. There haven’t been too many calls on where gold will stop with the immediate run, with some noting that $2,000 remains the metal’s most impressive achievement.

We’ll devote a separate section to the phenomenon of mystery drivers, but most suggest that Fed Chair Jerome Powell’s affirmation of rate cuts this year played a key function in the price move. It’s the pricing in of rate cuts in advance, in extreme fashion. And it has given gold its longest streak since 2000.

Besides attempting to answer what drove prices up, all we can do is watch and see how high gold goes in the next 48 hours, looking ready to perhaps clear $2,200. How’s that for an upgrade over the previous important psychological level?

Head-scratching among analysts: What’s driving the gold price gains?

We’ve found ourselves in an almost weekly routine of reiterating the absence of black swans each time gold breaks a new record recently. We’re given reasons that don’t really make sense. They don’t have the kick necessary to take gold to new all-time high price.

A financial crisis used to be necessary for that.

For example, here’s one analyst struggling with reality:

Prices breached Dec’s record on Tuesday [March 5 2024] and have jumped to successive daily highs ever since. The rally itself was peculiar: Gold tends to spike in response to globe-shaking geopolitical or economic developments, and nothing particularly noteworthy had happened to justify the surge.

The prices didn’t actually have that far to go before hitting record territory.

Another: JP Morgan, who tend to be bullish on gold, set a $2,175 price target for 2024 – time to update that number?

Some are giving China all the credit, suggesting that their 16 months of consecutive purchases drove things over the edge. A nice thought, but the official demand figures don’t quite add up to the kind of price surges we’re seeing.

Others have accused Joe Biden’s threat to seize $300 billion from Russia as the driving factor. (We’ve discussed weaponization of the dollar extensively in the past…) But it doesn’t seem to be a particularly popular narrative right now – definitely not the story moving the gold market.

Another thing likely to go under the radar is Vanguard’s analysis of the U.S. dollar strength against other currencies.

It found that the greenback is 12% overvalued compared to the euro, the Japanese yen, the British pound, the Canadian dollar and the Australian dollar.

Gold just hit its all-time-high price in euro – a more “expensive” currency (€1 currently costs $1.09).

So what’s going on? The simple answer, which has the virtue of also being true, is supply and demand. However that’s not exactly helpful…

Nobody really knew what drove gold up over the past few months, either. The Gaza conflict was credited for one bout of gains, but several other bouts had no single event to cause them. So it might be worth entertaining the idea that gold is experiencing some kind of organic price correction to the upside.

Maybe it’s more useful to ask, What’s next? A bigger question is what happens to gold when we see a real black swan? Or when the world’s central banks stop hinting at lowering interest rates and start acting?

When that happens, how much higher will gold’s price go?

Gold and bitcoin rose together, so are they comparable assets?

Gold and bitcoin both hit all-time highs on the same day, and have been steadily rising since. And that created a cottage industry overnight – comparisons between the historical safe-haven store of value asset, and bitcoin. The comparisons offer some amusement.

For example, crypto analysts are also wondering where the sudden surge in bitcoin is coming from, and how it relates to gold.

The view that the U.S. dollar suffers from structural weakness and that the U.S. dollar index doesn’t show that weakness isn’t exactly a fringe theory. Inflationary pressures have supposedly abated. We can’t count on lower inflation as a status quo, though. Central banks are already, as I mentioned before, teasing and hinting and flirting with a return to easy money. That’s massively inflationary, by nature.

We’re yet to see whether the Federal Reserve will be satisfied with just slashing interest rates, or will also crank up the money printers again. Either way, it’s a mistake to act as though inflationary pressures have subsided.

Maybe the flow of cash to both gold and bitcoin is a step toward dedollarization? Just as owners of federal government IOUs are dumping them. (President Biden apparently wants to steal their money anyway, at least in the case of Russia.) Surely, citizens worldwide want some kind of refuge from the dollar.

But anyone comparing gold and bitcoin as if they’re equivalent assets should have their heads examined.

Bitcoin’s neat, and it might be the future of money… On the other hand, it fell to a low of $16,000 before mounting a recovery over $70,000. Massive swings, to be sure.

Gold, on the other hand, had a much more measured approach to its new high. It spent most of the middle of 2023 around $1,650, a generally elevated level but then considered by many to be a disappointment. It then steadily established $1,800, $1,900 and $2,000, all with some distance apart.

There weren’t major corrections, surprising to many even from $2,000. So the comparison doesn’t stick, because one can say gold “corrected” from $2,070 to $1,650, but it was $2,180 just a moment ago, meaning buying and holding during any point would have been profitable.

Volatility is thrilling on the way up, and terrifying on the way down… While bitcoin rises rapidly, it also tends to plummet just as rapidly. Bitcoin has yet to become a mature asset and still should probably be considered highly speculative. (Just to be clear, we aren’t anti-bitcoin! Rather it’s a mistake to equate bitcoin to gold.) The last bitcoin bear market saw a 70% drop in price.

Gold? The 2011-2015 gold bear market was brutal – and gold’s price dropped half as much. Bitcoin is about 5x more volatile than gold (as far as we know; remember, bitcoin hasn’t been around long enough to make historical analysis very useful.)

That doesn’t mean it’s a bad idea to diversify with cryptocurrency. Rather it’s a warning that calling anything “digital gold” doesn’t make it so.

High-volatility assets like bitcoin may enhance your returns over the long haul. What they won’t do is help you sleep better at night.

This article was originally published here

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