The missing driver who drove the gold to $2,000 is here, and it’s a banking crisis. According to Bloomberg Intelligence, the financial fallout is making the Federal Reserve stop its tightening cycle. According to Crescat Capital Portfolio Manager and Partner Tavi Costa, the price of gold could easily triple in the current economic environment. Byron King, precious metals specialist at Agora Financial and author of the Whiskey & Gunpowder report, expects a new record for gold.
Gold market rises on safe-haven demand
After surging to five-week highs, gold traded near $1,920 and settled comfortably above $1,900. cryptocoin.comAs you follow, markets are busy digesting the influence of US regulators who took action to contain the sudden failures of Silicon Valley Bank and Signature Bank.
The gold market is on the receiving end of renewed safe-haven demand. But more importantly, the price was driven by the repricing of the US central bank’s rate hike expectations. The bond market is currently signaling a potential pause in the tightening cycle. Mike McGlone, senior macro strategist at Bloomberg Intelligence, comments:
The banking crisis is part of a wave of economic downturn, and the Federal Reserve has finished tightening. Federal funds futures show in a year (FF13) rates fell below 4% on March 13, after a high close of 5.26% about a week ago, the highest level since 2007.
“Gold price may reach $3,000 this time!”
McGlone says it’s inevitable for gold to see new record highs, given this change in the macro environment. According to the strategist, gold’s trading pattern could be similar to 2018, when the precious metal crossed $1,350 after Federal funds futures signaled a shift from tightening to loosening. McGlone predicts that the result this time could be for gold to rise to the $3,000 level. The strategist explains:
This rally pushed the shiny metal to a new high of around $2,060. Conditions seem sufficient for gold to rise to $3,000.
“The price of gold could at least triple!”
According to Crescat Capital Portfolio Manager and Partner Tavi Costa, the price of gold could easily triple in the current economic environment. Costa said, “I like to be conservative even though I’m very optimistic, but if you look at other times, I see that we are performing very strongly in an environment like this. “It is likely to triple the price of gold at least,” he says.
Costa says cash-rich miners should follow the example of the most successful energy companies by putting money back into the ground. In this context, Costa said, “Energy companies are printing money. And the interesting thing is, if you do backtesting, the better performers are not those that give money back to shareholders through dividends and buybacks, but those that actually invest more, actually increase output,” he comments.
Costa also sees gold playing a more important role on the investment side, as a hedge against inflation and also as a means of supplementing central banks’ reserves. In this direction, Costa makes the following assessment:
If you go back to the seventies, gold made up about 70% of (central banks’) general international reserves. It’s below 20% today. Now this turmoil in the credit markets in general has begun to create a need to improve quality for most central banks. And even if we do have a neutral asset, the only neutral asset we know of that has a credible track record of improving the quality of these reserves is gold.
Yellow metal could make a new ATH
Gold may not fit the classic definition as a critical metal, as only about 7% of global demand is used in industrial applications. But it plays an important role in society and financial markets, according to one market analyst. Byron King, precious metals specialist at Agora Financial and author of the Whiskey & Gunpowder report, says an era of excessive government spending and low interest rates has devastated the value of fiat currencies around the world.
Byron King does not foresee that the world will return to a gold standard. But he adds that gold can create some sense of stability and value. King adds that he expects gold to play a more critical role in global financial markets as globalization continues to decline and a multipolar world with multiple reserve currencies emerges.
Besides gold’s role as a global reserve currency, Byron King thinks it will continue to be a vital inflation hedge for individual investors, as consumer prices are not likely to fall any time soon. Although King did not give an official price target for gold, he said that he expects prices to hit all-time highs this year in the current environment.
