Gold & Silver Frenzy – JP Morgan Analysts Forecast Huge Moves
Peter Reagan

This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: JP Morgan is very bullish on gold and silver, gold in the context of the main economic themes of 2024, and something mysterious is going on with Russia’s gold reserves…

JP Morgan’s analysts issue rare recommendation for gold and silver

JP Morgan’s latest coverage on gold and silver almost reads like an advertisement, with the bank’s various analysts presenting their own reasons why they expect to see a breakout year for both gold and silver. Natasha Kaneva, Head of Global Commodities Strategy, set the stage by seeing gold through the prism of commodities:

Across commodities, for the second consecutive year, the only structural bullish call we hold is for gold and silver.

It’s a quote that stands out, for sure, as little over a year has passed since we discussed gold having yet to benefit from a commodity supercycle. Back then, gold and silver stood last on the long list of commodities posting outperformances. Now, as others have noted, raw materials were last year’s worst performers in a generally good year.

Is it testament that gold and silver were never “just” commodities and shouldn’t have been categorized so simply? Or, more precisely, that the gold and silver market are far more nuanced than, say, crude oil or lumber? We believe so. Calls for a correction back then haven’t been absent, and while one has materialized, gold and silver went in the opposite direction. Even platinum continues to rise.

Despite gold’s performance over the past weeks, having posted another all-time high, JP Morgan’s analysts believe that the metal is yet to run properly. This, they say, could start to take off around summer, coinciding with expectations of rate cuts.

Gregory Shearer, Head of Base and Precious Metals Strategy, said that timing an entry might be the biggest challenge when it comes to gaining gold exposure over the next year and half. This is partly to do with the volatility gold has already exhibited and the general difficulty of figuring out when resistance levels will be breached.

But it’s also because of the lofty price forecast that JP Morgan has unveiled: the bank says gold is set to average $2,175 in Q4 2024 and move to a quarterly average peak of $2,300 by H2 2025. If the forecast is accurate, we could be facing two historic years for the price of gold with limited headwinds. But since gold posts a new all-time high every year lately, isn’t that a given?

Considering the broad economic trends of 2024, how will gold perform?

My colleague Phillip Patrick discussed this question recently on Real America’s Voice, check it out!

Sprott’s dive into outlook features ten points of interest, with gold and silver each occupying one on the list. Discussed are themes like ongoing deglobalization, namely in trade and energy, a focus on commodities and the push for green energy.

Silver’s investment case immediately stands out as interesting as Sprott notes that the breakout silver seems to be needing could come from unexpected sources. As the analysis noted, 80% of silver is still mined as a byproduct of excavating for industrial metals. Weakness in demand from just a single notable consumer of metals like zinc and copper, such as China, could cause a surprise supply glut given the metal’s very lackluster production picture.

The Silver Institute projected that silver’s deficit could double over the coming years in an as-is scenario, one that revolves around ongoing investments in green energy. Whether silver breaks out with a slow and steady pace or lives up to its volatility when the action starts unfolding remains to be seen.

Sprott rightly notes that massive gold demand from the official sector has solidified the metal as something to go to in times of uncertainty or turbulence. Global central banks face a lot of it, with a bid for too-lazy-to-print CBDCs on one side and already flailing currencies on another. Their stockpiling of gold bullion can be interpreted in several ways, none too flattering for the fiat they issue.

Russia has served as an experiment of sorts, a question on whether a large gold hoard can give a nation sovereignty, if not outright impunity in the face of sanctions. The answers are mixed, but we know Russia hasn’t yet imploded Venezuela style due to being cut off from SWIFT, and that this is largely due to having over a quarter of their reserves in gold bullion. Many pundits have taken note that the sanctions are likely to pre-empt nations towards protectionism. And if the outcome of the sanctions is any indicator, they’ll be all the more inclined to buy gold.

Sprott also mentioned the Federal Reserve’s ongoing doublespeak, in which officials essentially entertain each side for months. Despite whatever Fed Governor says, the markets know it’s a matter of time until interest rate cuts are on our doorstep. These will add to inflationary pressures and temper the liquidity of the U.S. Treasury, both strong drivers as gold looks to shake persistent U.S. dollar strength and follow along in its performance in most other currencies.

Russia’s gold reserves hit an all-time high in 2023

When we picture a nation with a large gold reserve in turmoil, we think to the likes of Turkey, which sold central bank gold into the local economy to support the lira. Russia is another obvious example: oil and gas may be liquid in the physical sense, but it was really gold that was meant to propel the nation’s war efforts. The approach built upon nearly a decade of buying gold to build a sanction-resistant warchest.

So we would expect Russia’s reserve to considerably dwindle as it funds military action but also props up an economy that’s been blackballed by the U.S. and NATO. Instead, we get opposite news in the form of last week’s announcement that Russia’s official stockpile reached 2,350 tons in 2023.

Specifically, the country reported adding 34.6 tons in December, which might translate to a regular monthly purchase during a standard year for the Central Bank of Russia. But the last few years have been anything but standard.

The same sources we have previously quoted as speculating that China’s real gold reserves are closer to 20,000 tons also state that Russia’s are around 10,000 tons. That disparity in projections is interesting in itself, because the two nations officially have the same amount of gold, some 2,350 tons, according to public figures. This alone makes Russia’s similarly lofty figure more believable than China’s. After all, it would be only a four-fold increase from reported holdings.

Note: The reason all this speculation about the true state of national gold reserves is because gold is power. I’ve been rereading the intriguing Lords of Finance by Liaquat Ahamed recently and I’m struck by a historic parallel. In the years leading up to World War I, both the Banque de France and Germany’s Reichsbank built up secret stockpiles of gold. They knew they’d need economic leverage in times of crisis, especially should war break out. We’ve discussed how strange it is that we’ve seen regular announcements of the People’s Bank of China’s official gold purchases. That’s a public declaration of economic power. Secretive gold stockpiling is something else… So naturally speculation abounds.

Regardless, it’s clear that there is something interesting going on in Russia. The report says that the value of the gold officially hit an all-time high in December, seemingly attributing this more to gold’s rising price than the size of the stockpile. But the quantity of bullion is near the nation’s official all-time highs, too, which couldn’t be possible if Russia has been selling gold to fund the war.

An immediate explanation is that Russia is fudging the numbers, but in which way? Does it have more gold than reported, or less? It seems unlikely that the latter is the case. Being a top gold-mining nation complicates the question, as Russia could simply buy up local gold and adjust production figures however it sees fit. (Note also that China, as the world’s #1 gold mining nation, is often suspected of this subterfuge.)

There has certainly been no shortage of headlines reminding us how the gold business is going well in Russia, with the metal being sold in large amounts through the United Arab Emirates.

The safest bet is that Russia has taken the sanctions as an opportunity to buy up even more locally mined gold, stimulating its economy while gaining a universally-valued, highly liquid asset. There could be other elements in play, especially with the ruble’s latest freefall and the currency’s historic woes.

We wouldn’t mind hearing how Russia managed to, by all accounts, increase its gold hoard during a major bid for liquidity and a general economic squeeze. Perhaps it is a signal, no different than China’s sudden reporting of relatively small, regular purchases, but more readable.

Here, Russia probably knows that its standing on the world stage is tantamount to the status of its gold hoard. If the BRICS nations really do intend to launch a gold-backed currency, Russia would need to ensure their gold reserve is beyond reproach. Could both Russia and China be announcing their gold reserve purchases simply to lay the groundwork to launch a gold standard dollar rival?

That would be good for them – and bad for everyone else…

 

 

Peter Reagan is a financial market strategist at Birch Gold Group. As the Precious Metal IRA Specialists, Birch Gold helps Americans protect their retirement savings with physical gold and silver.

 

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