Did Fed just send gold over $2,600/oz?

This might be the most thrilling time in the gold market since 1971

Bullion.Directory precious metals analysis 23 September, 2024
By Peter Reagan
Financial Market Strategist at Birch Gold Group

Besides, if gold’s current run was similar to the GFC, we’d already be two years into a sideways market.

Instead, gold keeps going higher.

Why? Because of systemic risks, of deep-rooted problems for which there is no easy solution – I’ll get to that. That’s why we have to compare today to Nixon’s decision to leave the gold standard back in 1971. Then, gold went up due to a deeply-rooted problem, a massively-inflated dollar only theoretically backed by gold. The solution? End the gold standard. That decision kicked the inevitable reckoning down the road 50+ years – and it’s now come back to haunt the nation.

Explaining why gold hit yet another all-time high can, by this point, be brief. This time, there was one very clear factor: The Federal Reserve lowered interest rates by 0.5% last week, despite inflation significantly above their 2% target. The scale of the cut, 0.5% rather than 0.25%, might have been surprising to many. Maybe not everyone (Paul Krugman wanted a 3% cut in interest rates!).

Regardless of your take on the Fed’s decision, one thing is pretty clear: They’re now more concerned about the economy than about inflation.

But here’s the thing: Gold’s price went up less than 1% since that announcement. Gold’s price broke $2,600 before the Fed’s announcement.

This tells us that the Fed’s rate cut, despite the massive attention it’s getting in mainstream financial and even general-interest news, really isn’t that important. It’s a small piece of a much larger picture.

For a glimpse of this larger picture, we head over to an interview with Lynette Zang and her views on the U.S. dollar. Here’s the full interview; my thoughts below.

Zang points out we might do well to focus less on gold and more on the U.S. dollar, which she believes is nearing zero purchasing power:

“I believe with all my heart and everything that I know that we’ve already begun the transition to hyperinflation. We’re going to see more borrowing, more money printing, more inflation because they have not killed that beast that they created and continue to create. It’ll become very obvious in 2025.”

Zang wants us to remember that untethering the dollar from gold cost us 99% of the dollar’s purchasing power. And they now seem determined to wipe out that last 1%.

As usual with her commentary, Zang is a straight talker not afraid to take bold stances. She says we are going back to “feudal times.”

Here’s the thing: The bad guys here aren’t some shadowy cabal, but rather the very public figures making and changing our monetary policy, including but certainly not limited to money-printing. Zang thinks we’ll see plenty of money-printing quite soon.

She also points out the smoldering crisis in the banking sector. Of course, we know that the phrase “too big to fail” applies immediately and precisely to big banks. (Some of the recent changes to banking regulation include further lowering bank capital requirements by half – but only if you’re already too gib to fail…

In that sense, we’re in a repeat of the 2008-2011 GFC. Maybe you remember – it’s the one where big banks get bailouts (and everyone else suffers).

What happens in the next three years, and then the 8 years after it, will be exciting for gold investors and probably not so thrilling for those unable or unwilling to own physical gold.

We have to refer to a quote from Doug Casey, which is turning into a haunting affair of its own:

“Anyone who doesn’t have a significant part of his assets in gold coins will be an unhappy camper.”

It’s interesting that Casey mentions gold coins specifically instead of gold bullion bars – why? (I’d argue that gold coins are much easier to recognize and significantly more difficult to counterfeit than bars…) Well, let’s not get ahead of ourselves here. I can’t speak for Casey.

Regardless of its form, remember that physical gold is history’s favorite safe-haven asset of choice. That’s what it’s for, and that’s why we who own gold do so.

They’re selling tokenized gold pretty hard, and here’s why you should probably avoid it

We’ve covered tokenized gold in the past on several occasions. We said we don’t oppose the idea itself as a cryptocurrency diversification tactic. But also that it should not ever be considered as a substitute for gold bullion.

Since tokenized gold keeps coming up in the news, we have to keep covering it. All the more so, since these reports seem to be awfully convenient, considering both gold’s latest run and the global central bank drive to buy up all the available physical gold.

In other words, it’s easy to suspect that technological innovation isn’t driving this development, but something a little more nefarious.

Here we have an article written by Chat GPT Investing Haven “authors” that lauds the benefits of tokenized gold in 2025 and beyond, as if to suggest this is to perhaps become the primary method of gold ownership down the line as far as the average person is concerned. It might very well be what is planned. We just recently covered India’s very elaborate methods of obtaining their citizens gold. As if to reassure us, here is this quote:

“One thing is clear – if even Blackrock is committed to tokenization, you know it’s a new and sustainable trend”

Yes, physical gold isn’t “sustainable,” being limited and all that. But if we can just print it or, better yet, issue digital IOUs, we’re on our way to a “greener” world.

Elsewhere, we are told that digital gold will be protected by quantum security as piloted by HSBC. Let’s hear the science:

“As part of the quantum pilot, Quantinuum, the world’s largest integrated quantum computing company, used PQC algorithms and its Quantum Origin quantum randomness technology to demonstrate holistic protection of digital assets such as HSBC gold tokens from a quantum computing attack…”

That’s a lot of quantumness in one quote, isn’t there? It’s a term everyone recognizes but nobody understands. On a good day, this makes “quantum” a fancy way of saying high-powered, the same way we describe “AI” despite its lack of intelligence. So, if there are no quantum computers, do we really need technology to protect our digital gold from “quantum cyberattacks”? (And why do we own digital gold to begin with?)

In times like these, more than ever, skepticism is the name of the game. We just talked about how faith-based currencies, paper IOUs, are being destroyed. Gold is, unsurprisingly, benefiting from this, as anyone could have told you would be the case as far back as 1971. These free-floating currencies like the U.S. dollar are nothing but a promise to pay.

So, the proposed solution is to move to gold IOUs because they’re trendy, sustainable and somehow “quantum”?

Some economists say that the move away from metal coinage to paper banknotes was a matter of preference and convenience. Even if that’s true, the whole world is now paying a heavy price for convenience! Digital gold is ever so convenient to buy now, and doubtless extremely inconvenient down the line.

We would caution anyone considering digital gold. We all know of the “follow the money” adage: Central banks haven’t been buying digital gold, have they?

No, they’ve been stubbornly piling up gold bullion. Because they’re stuck in the stone age? The exact opposite – they understand the difference between IOUs and real assets.

I think we should consider “digital gold” in the same speculative asset class as cryptocurrency – exciting, new and maybe even relevant long-term.

True safe haven assets are tangible, whether they’re in a precious metals depository, your floor safe or a coffee can buried in the back yard. Call them less convenient if you must. At least you aren’t paying a premium for that “convenience.” Long-term, you’ll be glad for it, and so will your children and their children.

There has to be a run in silver’s price, but we may not be there yet

We’ve made a lot of accurate predictions over the last couple of years, and I believe not too many inaccurate ones. (Disagree? Let me know!) Either way, I feel confident making a prediction of sorts regarding silver.

As gold turns from hot to sizzling, silver might be one of the most difficult markets to gauge. It has already climbed above $32, following gold, but as we and many others have been saying all along, it’s not enough. It has been $32 already this year, some long ways off before gold was $2,600. This means that silver’s “climb” can, in a sense, be interpreted as a fall, because the gold-to-silver ratio became even more skewed.

In UBS’s recent note on gold and silver, perhaps the most important takeaway is their theory a ratio of 70 will be tested. (UBS have been among the staunchest of gold bulls, projecting $3,000 well ahead of the pack.) So what does this mean for silver?

A gold/silver ratio of 70, which would be closer to recent norm before things went askew, would mean $37 silver with $2,600 gold. But the price of gold has already risen higher…

If gold hits $3,000, like UBS and many others expect it might, it would mean $42.86 silver at a 70:1 ratio.

However, the ratio of 70 is still too high based on any historical precedent. Ergo, $43 silver is still too low. If silver could hit $50 in the 1980s, does it make sense for it to be $32 now given the erosion of the U.S. dollar since then?

And indeed, silver stopped just short of $50 in 2011, when gold was just passing $1,910. Again, all logic suggests that silver should have cleared $40 already as an absolute minimum.

We don’t truly believe any real run in silver will take place until $40 is cleared, yet it might be smart to take this as a signal. Once $50 is reached, anything up to $100 is still an idea that can be held in the mainstream.

We have previously said that $30 silver will be an important psychological price, but gold has  gained so much in the meantime that $50 silver is the new $30.

Something strange is going on in the silver market, and with gold above $2,600 and silver just above $32, the opportunity seems obvious. Everyone is waiting for a surge  in silver prices, so the only downside in silver would be a possible fall in gold prices.

One final point: I’d just like to use this as an opportunity to dismiss the sources saying that silver had “a good week.” It hasn’t, not in any sensible way. From this point on, we don’t believe that anything below $40 is a reasonable price for an ounce of silver.

Which makes any entry point below $40 a must-buy for anyone with an eye out for a good value, which I’d argue are strongly supported by silver’s supply-and-demand dynamics as well as centuries of historical data.

This article was originally published here

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