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Metal Market Report September 2020 - Week 3 Edition

September 2020 - Week 3 Edition

New Forecasts of $3,000 to $5,000 Gold by 2022-2023 from Major Wall Street Firms

Gold rose $23 Monday morning, September 14, from $1,940 to $1,963, before settling into the high $1950s, mostly based on a weaker dollar, which was in turn based on hopes of continued “quantitative easing” by the Federal Reserve when they meet this Tuesday and Wednesday.  Gold futures also rose $13 last week. In addition, gold-backed ETFs rose for the ninth straight month in August, as 39 tons of bullion worth, $2.1 billion at market prices, were added to gold ETFs in August, with seven tons bought in Asia.

Major mainstream investment advisory services are now predicting gold prices more than doubling in the next 2-3 years. First of all, Bloomberg Intelligence “is not ruling out $4,000 gold by 2023,” noting that the gold bull market is “just beginning.” Despite silver’s recent surge – growing twice as fast as gold since spring – Bloomberg Intelligence senior commodity strategist Mike McGlone LAO predicts that gold will outperform silver in the second half of the year, due primarily to a weak economy and weaker dollar.

“Gold has the catalysts to maintain performance leadership into year-end, in our view,” McGlone wrote. “Central-bank rate easing and U.S. bond yields gravitating toward zero are solid underpinnings for gold, as is the potential for increased U.S. stock-market volatility approaching the presidential election.”

In addition to the previous prediction of $3,000 gold by Bank of America Merrill Lynch by late 2021 or early 2022, we now see billionaire Thomas Kaplan, founder of New York-based asset management firm Electrum Group, predicting gold to reach “$3,000 to $5,000 if not a lot higher,” depending on a variety of circumstances which he explained at length in an interview on the David Rubenstein Show.

And now, Citigroup analyst Heath Jansen also sees gold in the $3,000 to $5,000 range, in a rise similar to gold’s bullish run in the 1970s up to its peak in 1980. “When investors are hungry for gold, the metal has a habit of rising exponentially, which has no parallel amongst metals,” he said, in a note to clients.

He then pondered what could drive gold above $5,000: “Given the historical role of gold as a storage of wealth, perceived devaluation in the purchasing power of fiat currencies translates into demand for what is essentially the ultimate global reserve currency. It is not illogical then, to ask what conditions are needed to drive gold up to and even past this level.”  

With minimum gold targets of $2,500 in the next 15 months – and $5,000 at the peak, perhaps the glut of fiat money and avalanche of new federal debt could drive gold even higher as more investors pour into the gold market in the next few years. Now is the time to plant your stake in the gold and coin markets. Just remember that when gold goes up, more investors buy gold and then many move into the coin market often resulting in increasing demand and prices.

The Major Inflation Indexes Finally Begin to Rise

The U.S. Department of Labor reported last week that its Producer Price Index (PPI) rose by 0.3% in August (a 3.6% annual rate), higher than the economists’ consensus expectation of a 0.2% increase. Service costs rose 0.5% in August, and some commodities have risen spectacularly in price since March. Lumber and silver have more than doubled in the last six months, while copper and gold have each risen over 40%.

The day after the PPI report came out, the Labor Department reported that the Consumer Price Index (CPI) rose 0.4% in August (a near-5% annual rate), higher than the consensus expectation of a 0.3% increase. The “core” CPI, excluding food and energy price increases, also rose 0.4%, so we have some hint of brewing inflation, but nothing serious yet. We’ll likely see more serious inflation next year.

Despite these increases, the overall Bloomberg Commodity Index, which is heavily weighted in energy commodities, is down about 12%, through September 10. One main reason why wholesale prices remain fairly flat – and commodity indexes are declining – is that crude oil prices tend to dominate the price indexes and energy prices have been falling. Crude oil prices fell below $40 per barrel last week and crude oil demand could drop further in the fall and winter months due to less driving and other travel.

Inflation is visible now in some key commodities but the Consumer Price Index (CPI) has not yet risen, due to a reticence among many consumers to shop during the COVID lockdown. As a result, there is a vast pool of savings among the middle class and rich, which will likely be spent more freely in 2021, when COVID concerns will be lower – either when the bug diminishes, or an effective vaccine is widespread.

When America feels that welcome relief, expect shoppers to celebrate and expect inflation to return with a vengeance. That’s when you’ll see gold trend higher, and the U.S. government confront their debt hangover…

 

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