With Record Prices, How Much Is a Gold Bar Worth?
Peter Reagan
 Gold prices have set a series of all-time high price records over the last few months. Today we discuss a different sort of record – and the forces driving gold’s price even higher…
This week, Your News to Know rounds up the latest top stories involving precious metals and the overall economy. Stories include: Living in a post $2,500-gold world, India's gold loan scheme to double by the end of the decade, and how gold has crept back into the monetary system under our noses.
Million-dollar gold bars and $4,800 price targets
Having held onto the $2,500 level for the entire week, it seems that gold is in an entirely different place than it was last month. Strange to say, since that was another all-time high month for the price of gold, like practically every other this year.
But this time around, something appears to have happened to the skeptics. Are they becoming an endangered species? Or have they simply gone dark while waiting for some kind of pullback to say, "I told you so"? Difficult to say.
While gold had a conspicuous amount of correction calls earlier this year as it went up, and even dating back to last summer when the action started, they now seem nowhere to be found.
Still, there is always that one form of amusing complaint: Why isn’t gold even higher? Analysts lamenting that gold isn't, say, $2,540 or $2,550 or some other number they prefer.
I think it’s safe to say that $2,500 gold has changed something. We know it did, because it gave way for a historic landmark of sorts, making it so that there are now gold bars worth over $1 million for the first time in history. And no, we're not talking about some collector’s item – these are the standard 400 oz. Good Delivery bars owned and traded internationally by central banks and other financial institutions.
Looking to the future now is as exciting as looking back to gold’s remarkable run over the past year, if not more so. Citi has reaffirmed the idea that gold is still “lacking open interest,” financial jargon for an absence of buyers. Citi also notes this situation is about to change. Citi says that gold's last few years, which have been historic, were actually some of the worst in terms of outflows. It's just that nobody noticed because other fundamentals were strong enough.
Today, Citi believes that this multi-year cycle of weak hands selling gold is wrapping up, or rather that it already has in May. By next year, they expect inflows to bring gold to $3,000, likely in the first six months.
A highly interesting forecast is one from Ronald Stoeferle, who recently said that Incrementum's target for gold is $4,800. Just a few weeks back, Stoeferle said that even $2,100 is a good gold price that investors should be satisfied with. Has he seen something in the price action to become a true, or true-er, believer?
And Sprott's latest commentary said that gold is to see "madness" in the next 18 months. To be clear, they’re talking about “madness” in the gold markets from a stampede of new buyers. They listed several fundamentals as strong supporters that could bring gold to levels – well, just read the commentary.
Perhaps the most important takeaway here is that we keep hearing about the 18-month stretch. Even though we often outline how there is no missing the boat when it comes to gold investment, seeing gold jump from $1,650 to $2,500 might deter some investors.
Latecomers, take heart! Apparently, we may still be in the early stages of this record-breaking run.
Why we should pay attention to India's government-loan-for-gold scheme
You’ve seen the signs hanging in windows, or distractedly waved on busy street corners. “Cash for gold” in the U.S. made a lot of waves when it first sprung up. Brick-and-mortar offices urging you to part with your gold that you don't need for cash that you DO need. It was strange, for sure. Pawn shops have always existed, so why the trend?
There was a known pundit or two who quietly, jokingly, but also seriously wondered if the cash for gold scheme was related to central banks. Or, if nothing else, other global financial institutions. The main purpose being shaking down citizens of internationally-valuable assets (aka “real money”) and offering them easily-printed cash in exchange -- that will evaporate whether it’s saved or spent.
In the meantime, these institutions continue adding gold to their stockpiles. They already own about 1/6th of all above-ground gold! The central bank agenda is very clear: Gold is money for governments, but not for their citizens.
India's budding loan-for-gold industry has similar vibes. We've discussed it recently, but it’s time to revisit. Projections now are that this industry will double by 2029, which is only five years away.
There is a quote that stands out in a conspicuous manner, by PwC India's Jaikrishnan G:
Lending against gold is the oldest form of credit. It remains one of the most attractive options for consumer[s] as well as lenders.
It might be old, but it's not exactly a widespread thing. You might have just heard of it a few weeks back when we first covered it, or are just hearing now if you've recently tuned in.
So why India? The reason is exceedingly simple: India’s households collectively own 25,000 tons of gold. Approximately 1/8th of the total above-ground gold supply. See, gold ownership in India is as common as clothes ownership here in the states. Even the poorest Indians in the most rural areas try to get their hands on physical gold (usually in the form of jewelry) at every opportunity. That is simply not the case in the U.S., where our middle class (if such a thing exists anymore) often owns no more gold than what’s in their wedding rings.
Why is gold so popular in India? Lots and lots of reasons...
- Lack of access to banks
- The 2016 “demonetization” which outlawed the most common banknotes
- Inflation and deliberate rupee devaluation
- Cultural and religious customs (the giving of physical gold as gifts to newlyweds, for example)
It’s also possible those who still remember the 1947 India Partition (when some 18 million people were forced to migrate with zero warning) see the sense in owning highly transportable stores of value. If you’re forced to evacuate your home and go to live in a tent city with just the clothes on your back, you’re a refugee. If you show up in a new country with a pocketful of gold, you’re an immigrant. That’s a big difference! (By the way, this is just a personal theory – feel free to disagree in the comments.)
Well, it looks like institutions want this privately-owned gold. There's no need to beat around the bush here. When you hand over your collateral, whether or not you repay the loan, you’ve lost control. Predatory institutions are happy to accept applicants who simply can’t repay, because there’s nothing to lose. India’s gold loans are often targeted towards lower-income and rural areas.
This looks like a transparent scheme to relieve citizens of as much of those 25,000 tons of gold as possible.
We’ve often discussed how China treats any gold within its borders as belonging to the state, regardless of the owner of record. It looks like something equally interesting is happening in India. Consider also India's government gold loans (second story at link).
What will this mean for Indians five, ten or twenty years down the line? Is the populace going to become "Westernized," in the sense that it won't own nearly as much gold anymore? Consider the Indian central bank’s gold reserves increased by some 80 tons without reported buying, and you can see where this is going. The Bank of India might not yet own enough gold to support a BRICS gold standard – but the nation of India DOES. It’s just a question of getting the gold into the “right” hands…
Here’s the bottom line: I believe gold ownership is a tool of financial freedom, and that central bank money is a tool of control and impoverishment. Before deciding to sell your gold to anyone for any reason, ask yourself what you’re really giving up.
Two new gold-backed currencies join the growing number of U.S. dollar competitors
The worldwide bid for value continues. While we were skeptical of Zimbabwe's gold-backed currency given that all of their past currency efforts have collapsed into hyperinflation, it remains a situation to follow closely.
The latest data is that 40% of Zimbabweans now use the ZiG as their go-to currency, up from a recent 20%. Well, if the ZiG is the official currency of Zimbabwe, but only 40% are using it, what are the remaining 60% dealing in? The U.S. dollar, of course.
It's a very Latin American situation, where the populace turns to U.S. dollars because of their massive supply and relative stability compared to local hyperinflating currencies. But the reason that, say, Argentinians use U.S. dollars instead of gold is because they don’t have a liquid form of gold for transactions, for everyday buying and selling. Gold is a liquid asset, but not convenient for grocery shopping.
Zimbabwe's efforts are a direct challenge to this, and this is the real de-dollarization that we care to observe. Forget countries dumping U.S. liabilities for a moment: People turning to gold-backed currencies (theoretically, at least, monetary gold) is a huge factor in the global dedollarization trend.
Now, this is still highly experimental, and we did say that gold will be blamed if the ZiG suffers the same fate as every other form of money Zimbabwe has issued so far. But if it doesn't? That will be major news. Zimbabwe's officials have openly stated that they want to end the whole under-the-counter U.S. dollar trade and have everyone in the country using ZiGs as the method of exchange by 2030.
How fruitful this endeavor will be will depend on how well the ZiG holds up in the coming years. But if it does hold up, there's little question that it will put the whole world’s unbacked paper currencies on watch. And also stir the idea that the U.S. dollar is enough to deal with currency destruction in any developing nation.
Here we must also remind readers that Tether's Alloy is operational without much issue so far, and even allows for staking. It's always the case that the private sector fills the gaps of the official sector, and Alloy is turning into a very notable example of this. Alloy has a capsule summary of the benefits of the gold standard right on its homepage:
The Historic Strength of Gold-Backed Currencies
Stable Currency Value
Steady Economic Growth: The gold standard provided a stable currency value, as currencies were directly pegged to gold, reducing inflation and encouraging steady economic growth.
Controlled Money Supply
Preventing Inflation: By limiting the amount of money that could be minted to a conservative ratio of the amount of gold held, the gold standard naturally controlled the money supply, preventing hyperinflation and promoting economic stability.
Facilitated Trade
Enhanced Global Commerce: The gold standard simplified international trade with fixed exchange rates, reducing the risks associated with foreign exchange and encouraging a smoother flow of goods and investments globally.
Between our gold IRA and the bullion we sell for storage, it's not exactly like people have no access to gold. But they want more. They want to store and trade it in increments, against assets and currencies, send it to others and so on. For some of the criticism we've had of Alloy and similar crypto-gold projects, they're still there to fulfill demand. We doubt that Alloy will take much investment from the sound bullion investor, but it might serve to make gold even more popular and mainstream, all the more so with younger generations who have taken a great interest in it lately.
It would be even better if these quick and highly liquid transactions could be made in an officially-issued currency that is backed by gold, but there is little to do as of yet but contend. Still, with ZiG on one end and Alloy on another, anyone wanting to see gold trulyre-introduced in the global financial system has plenty to watch in the years ahead.
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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