Experts See Strong Indicators for Gold in 2024

From Peter Reagan at Birch Gold Group

This week, Your News to Know rounds up the latest top stories involving gold and the overall economy. Stories include: Schroder’s case for gold in 2024, how real is the prospect of a gold-backed Russian ruble, and taking apart the CPI suggests gold should already be at $3,355.

Schroder’s: Gold stands on very strong footing as it heads into 2024

Speaking on a recent podcast, Schroder’s fund manager James Luke outlined why gold’s strength is conspicuous after 18 months of aggressive monetary policy. There’s no shortage of experts believing gold should be even higher than it is now, still holding strong around $2,050.

But it’s the backdrop of the Federal Reserve’s policy that makes gold’s performance staggering. We mention often how gold has a lot going in terms of headwinds, but what of the elephant-like tailwind in the room? Luke and the host discuss how any analyst might have forecasted $1,500 gold if told that real rates were going to go from negative 100 to positive 200 basis points. Indeed, when nominal rates were hiked in the past, it was often mentioned how this doesn’t necessarily affect gold past sentiment because real rates remain slumped.

Now that those have risen but gold still remains near ATHs, it’s clear that the metal is acting in uncharacteristic fashion. The pair, like so many others, believe 2008 was a turning point for gold. While gold has always very much been a go-to haven, Luke asserts that it traded more like a commodity closely tied to often-hyperinflated emerging-market currencies. Jewelry demand was also a key point in the market, but now, despite still being as strong as ever, is closer to an afterthought.

What has instead taken center stage is a general feeling of unease among investors who no longer believe the U.S. dollar to be the harbor it is claimed after seeing the money printing of 2008-2011. More than just an immediate effect, this quantitative easing posed long-term questions regarding the U.S. dollar’s stability, but also U.S. debt. Whatever doubts 2008 created were reinforced in spades when the lockdowns were rolled out, and the monetary stimulus went from billions to trillions.

More than just driving up gold prices through large purchases, Luke believes that central banks’ approach to currency management is the main thing that has dictated gold’s trajectory since 2008. It doesn’t exactly harm the metal that the approach is an ultra-loose one. Even during periods of extreme tightening, like the one on whose tail end we are in now, there is always the question of when the Fed and other central banks will return to their “unconventional monetary policy”, as the pair puts it. Or, in other words, QE.

As we’ve noted, the Fed is in a strange spot. It artificially propped up the economy as the lockdowns happened by printing trillions of dollars, then attempted to do a 1970s style remedy with a historic hiking schedule. But rates haven’t risen nearly to the extent that they have in the 1970s, nor have they been there for very long. So it’s the classic boom and bust, but with much higher stakes.

Japan, for example, has all but abandoned its currency by utilizing some form of Modern Monetary Theory. The U.S. can’t really debase so much since it needs the greenback to remain the global reserve currency. But we know that the Fed likes printing, and MMT isn’t exactly an economic approach strictly relegated to Asian nations.

We know rate cuts are coming, which is positioning gold exceptionally well. The only question remains is how far the Fed will debase the currency this time. The pair touched on various other intricacies surrounding bullion demand, such as that the Western investor still has trouble believing in $2,000 gold while in Asia coin and bar demand skyrockets.

Some are already saying that gold below $2,000 might be turning into a thing of the past, and if true, it will massively sway sentiment in favor of the metal. Another interesting point Luke brought up is that emerging market nations like China seem to want to realign with the likes of Russia, which has around 20% of its forex in gold. This ties into European central banks buying up gold to align with each other, which in turn gives weight to the notion that something is going on in the background in regards to gold and the monetary system.

Can the story of the BRICS-independent gold-backed ruble become reality?

Alasdair Macleod’s hypothesis of a gold-backed ruble is a bold one, but he’s sticking to it and offering regular insight into how and why this might materialize. His latest publication on the matter involves a reprinting of an article by Sergei Glazyev, Commissioner for Integration and Macroeconomics within the Eurasian Economic Commission, published on December 27, 2022.

We’re well aware that Russia’s state policy can be a polarizing subject, so we’ll address some of the more neutral points Glazyev made, that are often mentioned by Western analysts. These days, Glazyev can be considered Putin’s right-hand man if we take into account that Russia assumed presidency of BRICS on January 1.

The publication makes it clear that a gold-backed Russian ruble or, if that fails, gold used for international settlements isn’t some wild theory MacLeod came up with. Rather, it’s something that Russia appears to be actively seeking.

Glazyev said that they’re now in their third attempt to make a Russian ruble, the second having failed due to what they consider unfavorable positioning in the wake of Bretton-Woods which culminated in a default. Glazyev goes to some lengths on how and why he is dissatisfied with the petrodollar being used for settlements, along with of course calling for its collapse.

He mentions the independent analysis of Credit Suisse’s Zoltan Pozar, who calculated that fixing the oil price to gold instead of the U.S. dollar would immediately double gold’s price in dollar terms. Glazyev says that Russia’s massive gold reserves will, among other things, help it avoid a default as the one in 1998, which he blames more or less exclusively on American policy and terms.

We are reasonably sure that Glazyev is being a little less-than-honest in his appraisal, which might explain why Russia hasn’t yet unveiled a gold-backed ruble. Neither has China, which some believe has the largest gold hoard in the world. A gold standard brings about transparency and necessitates accountability. For all of the Federal Reserve’s wrongdoings, we would imagine it doesn’t stand apart particularly from Russia’s central bank when it comes to playing funny money, which is why Russia now finds itself in yet another inflationary bout.

A year removed, some of Glazyev’s forecasts on gold have already materialized, though not to the stated extent. It’s still difficult to buy into the narrative of a gold-backed ruble because a gold standard, as mentioned, requires sacrifice on behalf of the central bank, and the official sector isn’t exactly known for selfless acts.

But as Russia now takes the helm of BRICS, it’s as interesting to ever to see if they’ll try to compromise with a BRICS gold-backed currency, an attempt to normalize the trade of oil in gold, or an option yet to be revealed.

Analyst underlines CPI is a faulty metric, says gold should be closer to $3,355

How inaccurate is the CPI? Analyst Adam Hamilton asserts that gold should be $3,355 simply on the basis of following monetary expansion since 1970 but while still conforming to the CPI as an accurate gauge. He, like plenty of others, believes it to be intentionally skewed to make inflation look like far less of a menace than it is. John Williams’ Shadowstats generally place inflation around twice the official figure. Others are more stringent and end up with a figure several times that.

Whichever the case, there is just no adding up the numbers the way the Federal Reserve would like to. As Hamilton notes, gold supply in regards to production increases only 1% a year, and it has to be a good year for that. On the other hand, a “good year” sees the Fed’s balance sheet grow by 6.5%, whereas the 25.5 months after the lockdowns brought on a 115.6% expansion.

Hamilton accurately points out that costs have risen between 50% to 100% since the lockdowns started, but the CPI still claims a 19.5% increase. It claims that even as the Fed’s balance sheet expanded by 85.4%, which was a big win for the Fed as that figure represents a 13.8% reduction in said balance sheet. So it remains as ballooned as ever after the biggest hiking cycle in 50 years.

Hamilton again returns to monetary expansion and urges us to focus on it instead of inflation gauges, which are there to make policymakers look less irresponsible and greatly soften the public’s dissatisfaction. It’s the expansion of the money supply, the tracking of which the Fed conveniently altered around the time of the multi-trillion dollar stimulus, along with the conspicuous expansion of the balance sheet that gives the $3,355 figure as a minimum.

Gold is a very accurate gauge of inflation, perhaps the most accurate, so it seems logical that it’s only lagging behind in price while everyone gets around to the 50% to 100% price increase thing. Hamilton fully believes that gold price adjusted for monetary supply as well as newly-mined ore would leave traders bedazzled in short order.

But he is equally concerned with gold’s near-term path, recognizing the importance of sentiment and perception in the grand scheme of reining in loose money. Not overly interested in $2,100, he instead mentions $2,275 and $2,550 as two levels he finds realistic based on gold’s most recent up-legs and the accompanying percentage increases.

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