July 2024 - Week 2 Edition

Recapping Why Gold Will Break $2,500 in 2024

As I head off to Freedom Fest, I thought I would update my 10 reasons why gold will top $2,500, first published here in April (Week 1). This past Friday, gold approached $2,400 again, so we’re closing in on that mark, which I first brought to your attention last October, after my meeting with former Republican presidential candidate and financial guru Steve Forbes. When gold was still under $2,000 (near $1,975), he and I discussed how gold would likely rise to $2,500 in 2024, and he said, “even higher if the wrong guys win the election.”

Below, in shorthand bullet points, are my 10 reasons why I think gold will complete the final $100+ gain to reach $2,500 in the second half of 2024, and “even higher if the wrong guys win,” a prediction which now includes a possible replacement for Joe Biden on the Democrat Party ticket. This was a prediction Steve shared with me in October – as did Louisiana Senator John Kennedy. They were both well aware of President Biden’s cognitive shortcomings – similar to President Woodrow Wilson’s feeble mind and body after his 1919 stroke, when his wife, Edith, became de facto President for 18 months.

Here are my original reasons, along with a mid-year update, for seeing $2,500 gold:

#1: The Federal Reserve may cut interest rates earlier than expected and by more than expected. I must admit I was wrong on this prediction, but it doesn’t really matter. As we know, gold can rise while interest rates remain high, but the public doesn’t know that! If the Fed cuts rates on July 31 or September 18 – their next two Open Market Committee meeting dates – that might boost the gold price strongly.

#2: Central banks will continue their record-setting accumulation of gold. Before 2022, central banks never bought more than 656 metric tons of gold in any single year, but they bought 1,082 metric tons in 2022 and added another 1,037 tons in 2023, according to World Gold Council data.  In the first quarter of 2024, the world’s central banks exceeded the pace of 2022 and 2023, adding 290 tons, the largest first-quarter gain since at least 2000 (when records began) and 69% higher than the five-year quarterly average, according to the World Gold Council. Accumulation has slowed in the second quarter, but it is still on pace for another 1,000-ton year, since a recent IMF survey found that 29% of central banks plan to increase their gold holdings this year. Turkey and China have been the biggest gold buyers so far in 2024.

#3: Gold rises in Presidential Election Years, especially when it’s Trump vs. Biden: This still holds true, as the Republican National Convention meets next week to nominate Donald Trump. Gold has risen strongly in the past four Presidential Election Years and especially strongly the last time these two aging candidates squared off. In 2020, the price of gold bullion rose 25% and silver rose almost twice as fast, +47%. If gold rises 25% from its starting price of $2,062.50 this year, it will reach $2,577 by year’s end.

#4: Inflation is returning, in the Consumer Price Index – and in hiding. During the first four months of 2024, the Consumer Price Index (CPI) rose at a 4.2% annual rate, much higher than expected, but then it was flat in May. In June, crude oil prices rose by 6%, and over 15% in the first half of 2024, with many food categories soaring in price again. A poll in June showed inflation is still the #1 concern of Americans, so it will certainly influence voters. There are also hidden costs, not included in the CPI, such as the higher cost of debt service due to the Fed’s rate increases. A study by Democratic Party economists calculated the real Consumer Price Index was around 7% at the end of 2023, not the 3% the CPI claimed.

#5: Private buying in India and China is growing rapidly. Demand for gold by the citizens of China is “insatiable,” according to a Wall Street Journal report. This is mostly due to “fear buying” after China’s real estate and stock markets have fallen sharply and stayed down, wiping out the wealth of a generation. China is currently fighting deflation in those two markets, while nearby India has a healthier economy and is fighting inflation.  Private gold buying is soaring in India, too, so gold is serving as an inflation hedge and deflation hedge in the two most populous countries on earth, encompassing 2.8 billion people.

#6: Major Wall Street firms are jumping on the Gold Bandwagon – late as usual: Until May 2024, net gold ETF sales on Wall Street declined for 11 straight months even while gold prices soared. As major U.S. institutions raised their gold target price for 2024, their gold traders failed to listen. Citigroup, J.P. Morgan and TD Securities each published $2,300 price targets for gold back in January. After gold traders finally became net buyers in May, all we can say is, “It’s about time.” These new ETF buyers could drive more customers to buy gold and increase gold ETF sales. However, I recommend buying physical gold over ETFs.

#7: Biden’s debt spiral is running out of control. President Biden submitted his Fiscal 2025 Budget to Congress and it shamelessly calls for “reducing the deficit” from $1.86 trillion in 2024 to just $1.78 trillion in 2025 but that is based on “raising taxes on the rich and corporations,” a formula that has not worked historically. In the first eight months of FY 2024, which began on October 1, 2023, Biden’s big spenders have run up $1.2 trillion in red ink, a $1.8 trillion annual rate. In May, the latest month available, the Biden deficit was $347 billion, or $107 billion (45%) more red ink than in May of 2023

#8: Entitlements make “Balancing the Budget” impossible without lowering benefits. In a nation addicted to government benefits, it will be difficult to balance the budget, no matter who wins in 2024. The current government debt-to-Gross Domestic Product (GDP) ratio is above 125%. We have only been at or near this level once before, in 1945, when the ratio was 120% of GDP after World War II, but two decades of mostly balanced budgets brought that ratio down to 40%. Now, 60 years after LBJ added Medicare and other new entitlements, our hands are tied. We can only hyper-inflate our way out of debt, or make massive cuts in services, entitlements or military spending, which are “political poison” in DC.

#9: Wars threaten shortages, causing higher inflation in food and energy.  Thankfully, we in North America can be food- and energy-independent but the rest of the world is not. Wars in the Middle East and Ukraine – and possibly elsewhere soon – raise the specter of food and energy shortages. Russia is a primary fertilizer producer and major energy producer and the Middle East is an energy provider to most of the Eastern hemisphere. The Middle East war has also disrupted Suez Canal traffic and other shipping lanes, threatening the distribution of food and energy. Now, European farmers struggle to comply with energy shortages and rules of the Paris Climate Accord and EU, which will likely cause food shortages.

10: Gold Fever is contagious!  We have learned from the 1976-1980 and 2001-2011 bull markets – not to mention the 1849 California Gold Rush and 1896 Klondike Gold Rush – that Gold Fever is contagious. Once enough investors buy gold, the fever begins to spread. Then, Wall Street catches the fever and coin dealers advertise more, bringing in more customers.  Those customers typically buy more coins and drive gold prices up, as well, before moving into buying rare coins.  It’s the opposite of a vicious cycle, more like a ‘virtuous circle’ of more buyers generating more buyers, and then more rare coin buyers after that. I encourage you to contact one of our professional account representatives today in order to take advantage of a lot of the profit left in this latest run-up of gold and silver prices.

Gold rose strongly around the Fourth of July holiday, increasing $37 on July 3^rd and another $30 on July 5^th for a total of +$72 (+3%) in three days. This time, silver followed, rising $1.20 on July 3^rd and another $0.85 on July 5^th for a total +$2.07 (+7%) in three days. The S&P also set a new all-time high on Friday, on light trading, due to a misleadingly high jobs total for June. In the first week of July, gold rose 2.84% and silver rose 7.73%, while Bitcoin lost 12.34%.

During early Monday (July 8) trading, however, gold lost $34 on news that China did not buy any official central bank gold for the second month but China has always been secretive in their gold accumulation and they could be adding gold through other channels like buying from Russia as it looks to fund its war with Ukraine despite global economic sanctions. World Gold Council data also reveals that India bought nine tons of gold in June, the most in any month in two years.

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