Citibank’s New Gold Price Prediction Revealed
Peter Reagan

This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: Experts maintain a fundamentals-oriented $2,500-$2,600 gold forecast, is India having a Roosevelt moment with gold? and why silver’s long-term is more exciting than its recent price moves.

Corrections shouldn’t impede gold’s move to $2,500 and above

Some of last week’s headlines will say that gold has had a “correction” to varying degrees. Technically, a “correction” means a 10% price drop, although most people don’t use the word in a technical sense. I wonder, though, whether it’s correct to say that it has been a tepid week of gold price fluctuations considering the historic price level of $2,330…

According to many, despite the pullback from the $2,400 level, the gold boom is on track. Jared Dillian, author of No Worries, spoke to Kitco about why a technical 10% correction in gold could be expected but will prove meaningless even in the medium term.

Here’s the video; highlights below.

Dillian presents us with an interesting comparison of gold to cocoa which has jumped from $2,000 to $10,000 this year. Good for cocoa producers, not as good for chocolate lovers who are already dealing with high inflation.

Dillian says that cocoa’s breakout wasn’t just some supply squeeze hit, but rather that it was one part of a breakout from a 47-year lull. As he notes, the longer an asset’s price moves sideways, the more explosive the breakout.

In gold’s case, he says that there’s been a 13-year price back-and-forth, and only a month of real gains. So he views the fundamental case for gold as being just as strong, if a little less exaggerated, and expects a lot more in terms of price action.

Here’s how Kitco summed up the drivers of gold’s gains:

Gold surged 18% between March 1 and April 12, rising around $400 and hitting new all-time highs on escalating Middle East tensions, record purchases by central banks, concerns over sticky inflation, soaring U.S. government debt, and continued fiat debasement.

It’s quite a list and a long-overdue acknowledgment that gold is being driven by many things and powered by a strong technical picture, rather than just having a black swan boost the price. And, as you can probably notice, nothing has changed in terms of drivers. One can easily argue each of them is strengthening further.

So Dillian’s forecast of $2,500 gold for this cycle is solid, with major forecasters standing behind their previously issued targets. (For example. Citi once again reiterated that they expect gold to reach $3,000 within this run.)

Like many analysts, Dillian has taken note that sentiment has yet to arrive in the gold market, certainly on the Western consumer level. He is also highly wary of the U.S. debt issue, noting that we’re now paying $1.1 trillion on interest annually (compared to “just” $300 billion in 2019).

It’s the kind of increase that should make even the staunchest proponents doubt the greenback, and Dillian is very much in the doubting camp. He says that the real moves in gold might happen between 2024 and 2028, when the U.S. government will have to address the debt issue.

He expects this to come in the form of capping the nominal interest rate, as was done in the 1930s and 1940s, along with printing however much money is necessary to buy off our liabilities. Given that we already have plenty of the latter, it’s not exactly a far-fetched scenario, which is why Dillian revealed he holds as much as a 40% portfolio allocation to gold.

Why India is waving red flags on to currency, gold (and possibly BRICS)

India has had no shortage of curiosities involving gold lately. For starters, there was the almost stealthy 10% increase in their central bank gold stockpile in a month. We had some internal discussion wondering if there is a gold monetization element in place increasing the reserves. In other words, whether India is quietly treating some of its citizens’ gold as a national reserve asset.

To catch you up on India’s Gold Monetisation Scheme:

Indian households are sitting on an almost absurd stockpile of 25,000 tons of gold. The Indian government would like to stop importing new gold for obvious reasons and, instead, introduce a bit of local reliance, not unlike Russia or China.

To this end, the government announced the GMS a few years back with a simple premise: turn that household gold over to the government in exchange for a sort of bank CD that pays an annual yield (2.5% for a 5-7 year deposit – and simply eyeballing the India inflation rate chart tells us that’s less than half the average inflation rate since the turn of the century). This allows the nation to add privately-owned gold to its reserves without forcing the central bank of India to compete in a bidding war with the rest of the world’s central banks on the open market.

Would it be so weird during a time when we’re hearing of a 30,000 ton gold stockpile by China, made possible by essentially treating most of the gold within its border as a state-owned asset? China and India are the two largest gold consumers, after all, and they are both key BRICS members.

But there seems to be even more to corroborate this story. An article on Indian website Tatsat Chronicle, More Households Parted With Gold Jewellery Under Modi’s Watch Than In The Previous Decades, reveals plenty to those willing to entertain the notion.

Though the article itself is primarily an election piece, it sheds light on some very noteworthy things that most Western gold investors will be unfamiliar with. Like most nations in the world, India is dealing with a swathe of negative economic factors. We can simply say that life is getting harder for the ordinary citizen, and high inflation is without question a centerpiece when looking for culprits.

That part is well-known, but what isn’t is India’s gold loan scheme. In the West, we’re used to credit scores and the like when taking out loans. More often than not, and especially with lower-income residents, Indians these days pledge their gold bullion to a bank in exchange for a loan.

As the article notes, more Indians have done this under the current Prime Minister’s regime than any other. It has caused banks to loosen requirements for taking out these gold-pledged loans. A response to demand on behalf of the citizen, or demand on behalf of someone else?

For the consequences of missing interest payments in India aren’t all that different than in the West. Here, the bank takes the house or the car. In India, the bank takes gold.

This isn’t the kind of loan primarily utilized by low-income residents. India isn’t the West, where low or even middle class households have no gold. In India, gold is purchased whenever and however possible (usually in the form of jewelry on the lower-income end). So it is precisely these investors that have placed India as the top gold consumer and, all things accounted for, a top gold owning nation.

That brings us to our initial question: could India be pondering a gold confiscation? A Roosevelt moment? Perhaps, but there are some notable differences. Roosevelt took U.S. citizens’ gold to devalue the currency and was quite frank about it.

India is taking possession of its citizens’ gold with their consent. Still, if citizens can’t make interest payments, they’re left with no gold and a rapidly-inflating currency… Well, maybe not that many differences after all.

The only question that remains is how separate banks are from the state in India, or perhaps, how much separation we wish to imagine. In countries like China and Russia, there is virtually no separation, with any semblance of it being mostly a formality.

India is more similar to the West here in that there is a stronger semblance of separation, real or not. But if we allow for any kind of major connection or collusion between supposedly private banks and the Indian state, we have to see this for what it is: a cash for gold scheme. Loans increasingly unlikely to be paid off, taken out with an ever-increasing frequency.

The end result is the same as in the case of Roosevelt-era America, China and Russia. Gold privately held is flowing to institutions. And during a time when, both within BRICS and globally, a country’s gold hoard officially dictates how much economic relevance it has, it’s a story we can’t ignore.

Bart Melek: Look to silver’s growing supply deficit, not just the price

In a recent interview, TD Securities’ Bart Melek went into all things silver and what we should look for over the coming years. Investors right now are obsessing with price. The current price of $27 is just short of $28, and $28 is just short of $30. $30 is probably the most important psychological level until $50, so all of this is understandable.

But Melek sees far more interesting things on silver’s horizon, ones that anyone with an eye on the Silver Institute’s reports will be well-aware of. As he noted, deficits are the name of the game in the silver market right now. The next two or three years are going to determine silver’s price, largely due to industry.

Melek talks about “bidding up” on behalf of the automotive industry when it comes to silver as one of the strongest price drivers that could materialize in a world trying to move to net-zero. A car manufacturer producing a $100,000 vehicle is not held back by the two or three ounces of silver required. In the case of supply shortages, however, they’ll have plenty of motivation to incentivize silver holders to part with their silver so that it can be poured into the overall supply, which is done through higher prices.

To this point, Melek dismisses the idea of a persistent silver deficit, saying:

In my reality, you can’t use silver that doesn’t exist to put in electronic components and solar panels.

What this means is either squeezing of silver out of investment and into industry, or possibly the opening of new silver mines. The first will certainly be easier than the second. When’s the last time we heard of a silver mine opening?

Policymakers have shown no intention of slowing down when it comes to green energy and have instead set clear dates. So the silver will need to be used in industry, and one could argue there’s already enough of it.

The way to transfer silver from investors to industry is, again, higher prices. Compared to platinum or palladium, silver’s price doesn’t play that much of a role to producers of EVs. They can afford to double it or triple it in the case of a supply squeeze, as it’s a minimal cost increase to them in exchange for being able to resume operations normally. But for holders and traders, such price action would be beyond meaningful.

As the amount of unallocated silver decreases, Melek expects the metal to have a significantly more responsive price relative to supply and demand than now, where silver’s price is falling amid demand spikes. Even in the absence of some lofty bidding up, this alone should mean higher silver prices in the next five years, especially if silver investors decide they’d rather hold on to their silver instead of selling high.

 

 

 

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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