Amid rising inflation and geopolitical tensions, gold prices have surged.
In case you've been living under a rock, Gold prices have been on fire, jumping 20% in just the past 2 months.
That takes gold to a near-doubling since pre-pandemic, when it was meandering along at just $1500. Yesterday it closed above 2400.
So if you don't own any gold, it might make sense to get some in case it catches on. Plus, Peter Schiff can now buy nice shirts.
Soaring prices is a new experience for many gold investors, long accustomed to taking the slow and steady stairs while stocks take the elevator. But here we are with stocks flat and gold up 20%.
In fact, at this point gold has now matched the S&P 500 throughout the pandemic.
And, of course, it runs circles around the US dollar, melting like ice cream in the sun thanks to federal spending and a very obliging Fed that's knocked a fifth off the dollar's buying power since the pandemic.
What's driving the gold rally? 3 things: inflation, central bank buying, and geopolitical tension including Russian sanctions. With a guest appearance by some large mystery buyer -- rumored to be backed by the Chinese government.
Taking each in turn, we're coming up on 6 months now of rising inflation as the transitory inflation narrative turns out to have been a head-fake.
I also mentioned recently how central banks are now openly admitting they're preparing for some major financial crisis – a senior Dutch central banker said the quiet part out loud a few months ago, and presumably the crisis they're preparing for is sovereign debt and the bank collapses that tend to come along for the ride.
And then the geopolitical tensions, above all Russia and China. Russia itself isn't very important -- it really is Mexico with nukes, with a fairly inconsequential economy.
The problem is the US sanctions -- particularly the effort to seize the assets of the Russian central bank -- have put countries around the world on notice that their dollars aren't safe. That they can be seized any time you look at Joe Biden funny.
That sends them to the next-best asset, including gold. Gold's a pretty small market – all the gold in the world is worth about $16 trillion. While all the government debt is worth close to $100 trillion.
That means if money's moving out of US Treasuries and government debt, it can move the needle a lot on gold.
At this point Wall Street is falling over each other trying to up their gold targets. Goldman says 2700, Bank of America says 3000 by next year, UBS is saying 4000 in the next "2 to 3 years."
If that happens, we'd be looking at a near-tripling of gold prices. Which would be the biggest rally since the 2008 crisis. Before that you'd have to go back to the 70's.
Fundamentally, gold is insurance. When the world is as badly run as it is today, it's the last line of defense. And investors are finally realizing that.
Originally published in Profstonge Weekly
