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Gold Price Spikes to 6 Month High at Start of Year

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The spot gold price futures hit a six month high at the start of the year.

Rising expectations of a recession and a general decline in stocks and crypto have led to growing demand from central banks and investors.

Analysts from CNBC are anticipating precious metals price will rise, calling this year the “new secular bull market.”

Central banks bought record numbers of gold in the final quarter of 2022. Led by China reporting purchases of more than 300 tons of gold bars.

CNBC analyst Juerg Kiener, managing director and chief investment officer at Swiss Asia Capital, said last month that the current market conditions mirror those of 2001 and 2008.

“It is not going to be just 10 or 20%, I think I’m looking at a move which will really make new highs”.

Using data available from CME Group, analysts from FX Street see rising interest in the futures markets. The number of open interests in gold futures rose by more than 8k contracts for the third day in a row.

Miners are expecting bullish returns in 2023 as they expect the gold prices to catch up with inflation.

The Fed’s decision to hike interest rates higher and more frequently and in such reactionary manner despite experts predicting dire consequences.

Long time gold bug, Robert Kiyosaki is predicting that gold prices can reach $3,800 an ounce this year.

He’s also bullish on other metals, predicting that we will see silver prices will rise to $75 per ounce this year in a recent Tweet.

Dealer premiums on 1 oz gold bars have drop to as low as 2% in recent weeks.

Now is a great time for retail precious metals investors. Premiums on 100 oz silver bars have recently dropped as low as $1.49 per ounce over spot. This is similar to the premiums when shopping from online bullion dealers prior to the pandemic.

The FOMC committee is meeting. Powell’s remarks following the meeting in December indicate that the Fed is going to continue rate hikes this year, albeit at a slower pace. Today’s announcement is expected after 2:00.

Update:

The Federal Reserve Open Market Committee (FOMC) is responsible for managing the key interest rates that drive the economy.

In December the Fed announced their decision to continue the aggressive rate hikes.

The meeting minutes that were released today provide some guidance on the Fed’s plans for 2023.

The Fed is expected to continue to raise interest rates this year as it attempt to reduce the rate of inflation towards a target of 2%. Albeit with smaller incremental increases.

Recent CPI data shows that prices suggests that inflation has slows to around 7.1%, down slightly from 7.7%.

Yet, egg prices have climbed more than 49% in recent months. Some videos circulating on social media show egg prices in some NYC stores approaching $10 per dozen.

It’s expected that prices of basic essentials are expected to continue to rise as the impact of the rate hikes start to ripple across the economy.

Spot gold price held onto some earlier gains, silver prices are down slightly on the news.

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New Global Gold Standard Emerging from Recession

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The dollar emerged as a reserve currency following World War II as part of the Bretton Woods Accord. This was due to the United States having the largest gold reserves at the time. Bretton Woods provided fixed gold prices that was pegged to the USD making it the central spoke for trade.

NPR did a report in 2019 that gives some history on the Bretton Woods agreement, the development of the World Bank and International Monetary Fund or other organizations involved in evangelizing the use of the dollar in international trade.

More About Bretton Woods

In 1971, economic conditions were not entirely different than they are today. At the time, the economy was suffering from a relatively high rate of inflation, the ongoing war in Vietnam led to significant budget deficit and mounting debt, and there had been a longstanding decline in the U.S. monetary gold stock, and a recent, sharp rise in external dollar liabilities held by central banks.

Corruption in government had also reached a tipping point which later led to Watergate, the Church Committee and other investigations.

In August of 1971, Nixon held a top-secret meeting at Camp David with his top financial and economic advisors that included the likes of Arthur Burns, John Connally, Paul Volker and others.

Together they created a strategy for a controversial policy that removed the dollar from the gold standard which disrupted the global economy.

Long term, the decision to remove the dollar from the gold standard led to a decline in central bank holdings that reached the lowest point around 2010.

Since the financial crisis in 2008, Central Banks have been following the lead of BRICS nations and continued their gold buying streak in 2022. Globally, central bank holdings have now reached their highest point since 1974.

The Biden Administration faces additional problems today that didn’t exist in 2008.

Russia began exchanging rubles for gold and requiring foreign nations to pay for gas and oil in rubles to flout US sanctions. Some of this has been factored into gold prices this year.

Recent news of Qatargate involving the arrests of several prominent members of the European Parliament is more evidence of the corruption ingrained in the dollarized financial system.

Although the origins of Bitcoin remain up for debate, the original cryptocurrency also developed in response to the 2008 Global Financial Crisis that resulted from the US recession.

Cryptocurrency ledgers provide a shared and public transaction record that could provide central banks with more transparency.

However, the adoption of CBDC as proposed by the G7 as a programmable currency is fraught with controversy. Much of this causes confusion with consumers who are already struggling with mass adoption of crypto.

The recent crash of the FTX crypto exchange highlights significant issues of corruption within the current system that continues to spread to other sectors of the economy. plus the evidence of the emergence of a global BRICS currency backed by the combined gold reserves of member nations are just two of the additional challenges.

Discussions of a BRICS mixed basket currency began to emerge following the global financial crisis in 2008. Which was triggered by lax lending standards, record amounts of consumer debt and other factors that fueled the first housing bubble.

BRICS countries have been in discussion to establishment of a new digital reserve currency that is a mix of member countries.

The BRICS reserve basket currency allows member nations to engage in trade bypassing the USD. The strength of their local currency will help to strengthen their influence in the basket.

Some economist see this as a real threat to the dollar as a global reserve currency, thus reducing the demand for dollars worldwide.

On a macro level many of these things are seen as good indicators of strong demand and long term upward movement in gold prices.