2 Reasons Gold Is Smashing Records AGAIN
Peter Reagan

Gold just surged past $3,500 as mounting debt and looming Fed rate cuts shake confidence in the dollar. Silver is quietly outperforming, while turmoil in West Africa adds fuel to supply concerns. Here’s what’s next for gold and silver prices… 

Gold passes $3,500 – what’s the next stop?

A slew of headlines recently told us that the price of gold was held down positive economic data reports.

If you’ve actually been watching recent reports, you know to dismiss these headlines. Economic strength can't be holding gold down. Small businesses are struggling, jobs numbers aren’t looking great, the Fed’s preferred inflation index is heading the wrong direction. Ray Dalio even moved his “economic heart attack” prediction up to the next 2-5 years.

It’s honestly tough to find positive economic data right now. Take for example this UM Consumer Sentiment survey. It’s considered the standard gauge of man-on-the-street economic sentiment. Consumer sentiment has been tanking through July and August. Survey Director Joanne Hsu said sentiment is down 10% from six-12 months back.

In short, Americans generally (across multiple age and income brackets) have less trust in their own economic security. Therefore they’re buying less – but, thanks to higher prices, they still have less disposable income.

The survey’s inflation expectations for the year ahead rose to 4.8% (up from 4.5% just a month ago).

That’s way, way off the official inflation gauge (which our friend Ron Paul calls “nonsense”). Way off the Federal Reserve’s official target.

It’s actually pretty close to the unofficial average of CPI since 1968 – which is 4%. Maybe it’s time the Fed just accepts reality and simplytells us that 4% purchasing power destruction per year is normal?

Recent news simply doesn’t seem to justify the recent jump in gold price. Consider, President Trump bragged about our low prices while assuring that inflation isn't really happening. Then Fed Chair Jerome Powell made confusing comments that a lot of people interpreted as “dovish.”

Powell said that a shifting balance of risks in the economy may warrant an adjustment in monetary policy, signaling a buy signal from Michele Schneider, Chief Strategist at MarketGauge.

“Powell showed that he is not overly concerned with getting inflation back down to 2%. He is now more focused on the slowdown in the economy and the labor market.”

I’ll say it again – getting close to their target rate of inflation is not good enough. Even so, investors have already priced in a September rate cut, which will lower the dollar’s purchasing power – and push gold price higher.

I simply cannot imagine inflation returning to 2% if the Fed starts cutting in September. The only way that would happen is if we saw a massive economic slowdown…

Naeem Aslam, Chief Investment Officer at Zaye Capital Markets, offered another perspective:

“Trump controls the Fed narrative now, which means rates will come down and the gold price will move higher.”

Who’s in charge here? Is it the Fed, or is it the President and his “control” of the “Fed narrative”?

Does it even matter?

Chantelle Schieven, Head of Research at Capitalight Research, offered a blunt perspective. She expects Trump’s conflict with the central bank to further damage the U.S. dollar’s reputation as the world’s reserve currency. A recent report from Crescat Capital shows that gold has surpassed U.S. federal debt among global central bank reserves:

Data and original chart via Crescat Capital

In such an environment, there is no way to predict how high gold prices can go.

Let’s hope that environment doesn’t materialize. But if it does, those who own gold will be well positioned to ride out the volatility.

Silver has outperformed gold without setting records (so far)

We've been running into some interesting silver stories recently. Silver might be ready to finally make some major moves…

Hearing big analysts target $42 and $44 last week affirmed this. If we're starting off with price targets, there's no ignoring Philip Streible's recent dive into silver price charting, which told him $60 could be underway.

He expects silver price constantly pushing upward to touch levels last seen in 2011. Streible thinks a $50 silver price is a middle-of-the-road prediction, while $60 silver is worth holding out for.

He also pointed out to some of silver's fundamentals, including hitting a fifth consecutive year of deficit that could create a supply squeeze anytime. And industry is really burning through silver right now, setting up an absolutely historic supply crunch

As my colleague Phillip Patric reported last week, silver is now on the list of critical minerals that have strategic importance. (Why wasn't it there already?)

Perhaps the most curious is to hear that silver has outperformed gold so far this year, rising by 34% compared to gold's 28%.

Silver has always outperformed gold during bull runs. Even so, this is strange to hear. When gold has nearly doubled doubled in price to $3,500. Silver has definitely been absent headlines until relatively recently… Which just goes to show how great silver’s upside remains. And why we've been pointing to $50 silver for the longest time.

Global gold: Burkina Faso wants to keep gold in-country, while Vietnam state gold monopoly

Burkina Faso, Africa's fourth-largest gold producer, is tired of cooperating with gold mining companies. This is a big deal! Gold makes up 75% of Burkina Faso’s total exports, and it was the world's #13 gold producing nation last year.

As part of an overall bid to nationalize natural resources, Burkina Faso made a "request" this week to acquire another 35% of the major Kiaka gold mine run by the corporation West African Resources (WAF). Orezone, another major miner in the country, said that they plan to meet with officials to discuss “the situation.”

Here’s the thing: Both West African Resources and Orezone are publicly-traded gold mining companies. And they’re both operating in a nation ruled by a military leader turned “president” who “has called on his ministers to expand state control over resources.” Even though WAF has “already paid hundreds of millions of dollars in taxes and royalties to Burkina Faso, with revenues expected to reach the billions once Kiaka ramps up.”

But that’s not enough.

Consider for a moment: The entire nation’s GDP is only about $27 billion. (For comparison purposes, Treasury Secretary Bessent borrows more than $27 billion in two business days.) The Kiaka mine will cost about $450 million to fully develop (WAF secured funding for much of the total). From the beginning the Burkina Faso government had a 10% stake in the mine’s profits – that’s profits – without contributing a single nickel to actually develop the project.

The government’s 10% share became 15% after the first ore started coming out of the ground back in June... And now, it’s 50%.

Listen, I’m not saying the nation of Burkina Faso shouldn’t profit from its own natural resources. But welcoming a foreign developer in, letting them make hundreds of millions in fixed capital investment, even more in equipment and training. To wait for the project to become productive – and then decide they deserve a bigger share of the profits. Again, that’s what really aggravates me – the government didn’t offer anything in exchange for their 50% share. They aren’t sharing risks, they’re simply taking profits.

Burkina Faso’s relatively new state-owned gold mining company, Societe de Participation Miniere du Burkina (SOPAMIB), has already taken overfive gold mines and exploration permits in June alone! I say “taken over” – technically, SOPAMIB bought them, but only paid 25 cents on the dollar.

There’s clearly a nationalist case to be made here. Nature put those gold ore deposits within Burkina Faso’s borders. And possession famously is 9/10ths of the law. Like I said before, there’s nothing wrong with profit-sharing. It’s the outright takeover that distresses me. The government is strangling the geese that lay golden eggs, one by one. Chasing short-term gains and cheap, populist victories over long-term, mutually-profitable agreements.

The bigger picture, though? With gold's supply already under considerable strain, the question of where new is supposed to come from grows more urgent by the minute.

 

 

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.

 

www.birchgold.com