Even Goldman Sachs’s Lowball Gold Forecast Shatters Records
Peter Reagan

This week, we take a deep dive into a gold price forecast so bullish we had to read it twice. Here’s why Goldman sees gold surging (and why silver’s surely not far behind)…

This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: $2,400 proves strong support as gold shifts gears towards $2,500, silver's biggest move above $30 in a decade, and ways to interpret central banks' portfolio theory today.

Gold breaks another high, with analysts pointing to $2,500 as next to watch

Headlines once again struggle to keep track of gold's performance. Publications from Saturday mention how gold hit a new ATH of $2,417, but the metal has since moved to $2,440. Besides a display of resilience above $2,400, it appears to also be signaling a desire to move to $2,500.

Analyst consensus is that gold will attempt to make the move this week. How high could it go during this run? It seems that $2,400-$2,500 projections are the norm, and that upwards forecasts are what captures the most attention. One might say, the most daring forecasters in the gold market.

This has turned out to be Goldman Sachs of all people, whose team now sees gold price as high as $3,000 within this cycle. Volatility will make or break the run towards that target, says Goldman, though noting that fundamentals don't necessarily require a lot of black swan-style action:

Strategists at Goldman Sachs remain optimistic about the future trajectory of gold prices, projecting a target of $2,700 per troy ounce by the end of the year—a 17% increase from current levels…

For instance, an escalation in U.S. financial sanctions similar to recent trends could drive gold prices up to $3,130 per troy ounce, spurred by increased central bank buying.

Listen: Goldman Sachs, one of the most established and reputable of the big old investment banks, sees gold between $2,700-$3,130/oz in the near future. That’s a 11%-29% increase from today’s gold price of $2,435.

That’s astonishing!

Last week, a softer-than-expected inflation report was attributed as the trigger for higher gold prices. Does that make sense? Would a modest reduction in the rate of inflation make gold bounce from one all-time high to another?

This seems less plausible compared to the preferred explanation, which is that gold's fundamental value is simply that strong. But as always, it takes a while until we have a true consensus on what's driving the market, and speculation always comes first.

If we're to speculate something, we prefer to focus on forecasts of gold's price in the weeks and months to come. Goldman Sachs, for example, says that gold will "only" reach $2,700 this year remember that’s an 11% increase), which means they expect a long period of elevated prices.

We're heading into June, which generally means the year’s weakest quarter for gold. The same is true for all financial assets, incidentally. Summer, kids are out of school, families go on vacation and big financial decisions are generally put on hold until September. This could actually be the origin of the old saw:

Sell in May, and go away.

That is, if we translate “go away” to mean get on a plane to someplace exotic where you won’t have access to financial news. It’s hard for some people to disconnect from the constant noise. Liquidating your assets just so you can take a break from worrying about them seems like a rather extreme step to take, though. Maybe they did things differently when the phrase originated way back in 1776?

Regardless, this is another point of interest. It suggests gold will correct based on seasonality, but what would that look like?

Gold would now have to correct to $2,200 for any kind of dramatic effect. The problem, which gold owners probably don't mind having, is that even $2,100-$2,200 are elevated prices. Even if gold falls as low as $2,000 over the summer, logic would dictate that it would bounce back and gain even further (once everyone gets back from vacation).

The flip side scenario has gold simply rising from the current point. Everyone's always trying to get a chart up and mark the starting and ending points of any price move. They don't like to admit that there is no way to get an accurate model until an asset's price cycle is complete.

As Yogi Berra reminded us, “It is difficult to make predictions, especially about the future.”

And another thing we aren't seeing anyone mention is that the economic backdrop has mostly stayed the same since $1,650 gold. The nominal rate actually hasn't changed, only sentiment producing expectations that it will. So to understand how gold has moved from $1,650 to $2,400 with little in the way of new drivers, analysts have to look to gold's fundamentals. They are what should be propelling any asset up or down, as they're a reflection of real value.

So it's refreshing to see that, rather than a black swan, powering gold's historic performance recently.

What $30 silver means for precious metals investors

It's strange to think about the “psychological level” of $2,000 gold for several reasons. For starters, it's how rapidly it was left in the dust after spending so long as a sign post. It’s hard to remember just how meaningful that price once looked.

But it's also highlighted silver's comparatively lackluster pricing. $30 silver can reasonably be compared to $2,000 gold. At those prices, the gold-to-silver ratio is a tidy 67 – mighty close to the average level since the turn of the century.

The technicals support it even on the conservative side. Yet gold passed $2,000 and kept on going to $2,400 and above, while silver actually fell below $30. It was a conspicuous move in the opposite direction for a metal that traditionally moves together with gold, but with greater gains.

Having already been above $2,400, we aren't sure that the latest bounce in gold is what's powering the gains in silver. We'd like to think that the market is catching up to some very long overdue price action. The price supports this, as silver has traded above $30 since Friday and the next stop is likely a firm floor at $32.

A pullback in gold where silver stays above $30 would affirm that silver is returning to normal in terms of relative pricing. The gold/silver ratio is one of the biggest pointers to silver's unnaturally low prices. It has only widened since gold gained from $2,000 (but silver remained mostly static). Since unbalanced ratios such as these have, without exception, resulted in silver correcting upwards, it's a gauge we're very much watching.

We've recently said that $50 is the next level for silver after $30, which might seem extreme to some given that it represents a near doubling of the price level. But it's not that much of a stretch once we understand how low silver prices are relative to any metric worth comparing them to.

An analysis by Andrew Addison both highlights the importance of $30 and says $45-$55 are the next projections after a monthly close above $31. It's quite a statement as silver has been there for some days. In other words, stable silver prices are the most bullish indicator and mostly affirm that a run towards $50 is brewing.

So while gains below $45 are going to be exciting, what they'll really be doing is affirming we're on the right course for an upwards correction. Silver's pricing under $30 has stood out like a sore thumb after a year of surprising asset valuations across the board.

This makes silver breaching $30 a momentous story, and its stay above one to carefully monitor. So far, silver hasn't shown much desire to retrace, which is as bullish as anything in the market right now.

Got silver? If you don’t already, it might not be too late…

Are central banks de-dollarizing, diversifying or doing something else with gold?

JP Morgan recently summed up one of the stranger points of gold's current move up:

Despite uncertain macro conditions, the dollar has continued to demonstrate strength – largely thanks to sticky inflation, a resilient U.S. economy and year-to-date highs in yields. Indeed, in a display of U.S. exceptionalism, the greenback has gained against just about every other major currency in 2024.

That's right: gold has been gaining in a generally outperforming currency. All the stories of gold's feats in recent weeks, and for that matter since the start of the year? They have been done in a fiat that is doing a bit better than its competitors.

We did just say that markets are supposedly driving gold up based on lower CPI data. Is it that much of a leap for gold to be gaining in a generally strong currency?

It's not a hard argument to make once we remember how badly each currency is doing individually. The U.S. dollar's backdrop is not good: as opposed to the beginning of the hiking schedule, there is very little now to hint towards strength in the dollar. But there it is all the same, outperforming even the euro and the pound, two haven sovereigns that have had an even harder time keeping up with gold.

Then, of course, there is the whole issue of de-dollarization. Central banks might have been one of gold's most important pillars of support over the past decade, but they are now something to be scrutinized for any kind of tell in their actions.

The IMF's official stance is that the U.S. went too far with sanctions through the use of the dollar and that countries are now diversifying in response. We've been somewhat careful with our overview of the idea of de-dollarization. When we hear that countries are dumping U.S. dollars, and especially in light of commentary like the aforementioned, it makes gold sound like a fortunate beneficiary.

This kind of view also neglects the U.S. dollar's general outlook, including extremely rocky fundamentals in the form of a $34 trillion debt pile and inflation as the preferred way of addressing it. Instead of countries buying gold to lessen their greenback allocation, might we instead interpret it as a return of capital to real money?

Everything these days seems to point to a desire to upset Western hegemony in global trade on behalf of less-developed nations that are nonetheless abundant with exports. And it's well-known that another fiat won't cut it. To roll out a competitive currency, BRICS nations will need to tether it to something tangible, with gold being the preferred choice.

So when central banks prepare for a third straight year of record bullion purchases, their actions have to be interpreted as having greater depth. JP Morgan says that they'll keep buying despite historically high gold prices. Besides being a bullish expectation on its own, this would also affirm that something big is going on behind the scenes regarding gold's role in the monetary system.

These days, even a country like Iraq has over 145 tons of gold, as the hoard outstrips those of more developed nations. In a value-oriented monetary reimagining, would countries like these remain near the bottom of the list of economic performers?

Questions like these can rightly be called the best part of gold's current run, though price enthusiasts would disagree. But it's they that reveal the magnitude of what gold has going for it. Instead of asking when the move will stop, we, like many others, are wondering if some kind of gold-backed currency is being prepared in the background.

Zimbabwe's latest currency effort centers entirely on gold, as they attempt to tether a systemically faulty fiat to it in a quest for stable currency. So we already have some kind of affirmation that instead of just dumping this or that currency, countries are attempting to return to having some value as far as the central bank is concerned.

How far this is taken, especially in the near-term, has probably already been decided. If BRICS or other emerging markets have some kind of gold standard announcement prepared, it will be rolled out sooner rather than later. In the absence of one, we're left gathering various bits of data from the official sector as we anticipate their next move relating to gold. Chances are, it'll also be a criticism of the current monetary system and the fiat that powers it.

 

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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