5 Factors That Will Drive Gold in 2024
Posted onGold has been one of the best performing commodities in 2023, up over 12% as the precious metal set a new all-time record high in late November. Traders like to say: “the trend is your friend” and in this case the trend points higher for gold. Here’s a look at five factors that will impact gold in the year ahead.
1. Geopolitical tensions boiling hot
From China-U.S. tensions to the Russian war in the Ukraine and the Israel-Hamas war in the Gaza strip, military and political hot spots are seen around the globe. What will the January presidential election in Taiwan bring and what could it mean for China’s desire to annex the island nation? Will Asia become another military flashpoint next year? Investors flocked to gold as war broke out in the Middle East in a traditional flight to safety. Increased geopolitical tensions in 2024 could open the door to another big upswing in gold.
2. Election year politics: a major uncertainty on the horizon
Presidential elections are always a source of market volatility. In 2024, we could see a more dramatic market impact, given that U.S. polarization is on the rise. At this point it appears that a rematch between President Biden and former President Trump is likely. But, a lot could happen between now and next November. Financial markets do not like uncertainty and just like the election in 2020, this presidential contest could be a nail biter that comes down to the wire. The greater the political uncertainty, the more risk for stock market volatility in 2024. Gold will benefit as the precious metal represents a long-standing safe-haven asset and ballast to portfolios.
3. The economy: soft or hard landing?
The economy will be a key driver for gold in 2024 as forecasts for slowing growth and potential for a mild recession will increase investor interest in gold as a hedge and portfolio diversifier.
While the stock market began pricing in a “soft landing” in December, which would mean a return to a 2% inflation rate without a recession, that is by no means a done deal. The Consumer Price Index (CPI) stood at 3.1% in November, an improvement from levels seen earlier in the year, but still above the Federal Reserve’s 2% target inflation rate.
Will there be a “hard landing” scare in early 2024 as GDP numbers weaken and inflation remains sticky? If yes, look for stocks to tumble and gold to climb. A number of Wall Street firms including bond giant PIMCO, Deutsche Bank, Vanguard, PNC and LPL Financial all expect a mild recession to emerge in the U.S. in 2024. Inflation and interest rates have been two major drivers of gold market performance over the past several years, and they will remain important in 2024.
4. Fed policy: rate cuts ahead
In December, the Federal Reserve started talking about interest rate cuts, suggesting the current monetary policy cycle has peaked with the federal funds rate at 5.25%-5.50%. Gold surged after the mid-December Fed meeting, when central bank officials suggested that they see three interest rate cuts in 2024. As higher interest rates typically compete with gold, which pays no interest, falling interest rate environments are historically positive for gold.
When interest rates fall, gold climbs. Looking into 2024, the falling interest rate environment will be a positive driver for gold and is a key reason many strategists expect gold to see new all-time highs in the $2,300-$2,400 region in the New Year.
5. Central banks: expect the buying spree to continue
Global central banks were voracious buyers of gold throughout 2023. Gold purchases from central banks are 14% higher through the end of the third quarter, versus the same time last year, the World Gold Council said. Peering into 2024, 24% of all central banks intend to increase their gold reserves in the next 12 months, as they increasingly grow pessimistic about the U.S. dollar as a reserve asset, a recent WGC survey said. This continued strong demand stream for gold will propel prices ever higher.
The bottom line
No economist or market analyst can accurately forecast what lies around the corner. Yet, prudent investors can capitalize on the uncertainty and take action to protect, preserve and grow their wealth with a diversified portfolio that includes an allocation to gold. We’re here to help.
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David’s Christmas Pralines
Posted onWhen I was a kid, I’d always bug my mom to make pralines. Pralines were my absolute favorite treat! My mom would always reply with they’re too hard to make, you need a marble slab, and the humidity must be just right to make them. I remember trying to figure out what humidity and the weather had to do with cooking. I assume she was just, as my mom would say, “pulling my leg” on the humidity part.
(mom and myself- late 1970s. This is the only picture I have of the two of us. the rest were lost in Katrina. But, do I really need any others?)As mom’s do, she tried to find a way to make me happy. Without me knowing she asked around trying the find a recipe for pralines that didn’t rely on a marble slab or the weather. Of course, in the early 1980s she didn’t have access to the internet. Recipes had to actually be passed from hand to hand. Simpler times for sure. Her persistence paid off, to my delight, and one day she came home with what she called an “easy praline” recipe. The only catch was that I would have to come up with the pecans for the recipe.
Fortunately, we had a wonderful pecan tree in the yard that we loved. And, that tree loved us back every year by dropping so many pecans on the ground that we would fill up several paper grocery bags full. Some days I’d just stand on the around in the yard eating pecans. I got pretty good at cracking them against each other.
The pralines turned out fantastic. The tough part was having to ration myself to the two or three a day that mom allowed me to eat.My mom passed away in 1993. For years I kept her handwritten recipe. Somewhere along the way the recipe was lost, but I can still see the blue ink on the notebook paper and the title “Easy Pralines” written across the top of the page. Years later I dug around on the Internet and found the same basic recipe. It really is easy and doesn’t require a marble slab or a certain humidity level. I’ll include it below and hope you get a chance to try it out. Feel free to ask me any questions. And of course, let me know how they turn out and how many people you made smile with your homemade pralines.Easy Pralines: (this same basic recipe is online in many places, but I’ll include my tips) 1 package butterscotch pudding (NOT instant, cook and serve) 1 cup sugar 1/2 cup brown sugar 1/2 cup evaporated milk 1 tablespoon butter 1 1/2 cups pecans (pieces or halves) Mix sugar, pudding, milk and butter in medium saucepan. It’s best to use a non-stick pan of you have one. Cook on medium heat, constantly stirring, until boiling. Turn down heat to medium and bring to 234 degrees. Some would say use a candy thermometer. I don’t have a candy thermometer but do have an instant read thermometer that I use for the grill. This works great). Remove from heat and add the pecans. Now, comes the hard part. Beat with a wire whisk until thickened. The obvious question is how thick. Rather than how thick the best way to judge it is by the color of the mixture. When you remove the mixture from the heat it will be shiny. As you start to stir it with the whisk the shine will go away and turn dull. At that point, you can start to spoon the mixture on to wax paper.You have to move fairly quickly at this point because the mixture will start to harden in the pot. If you’ve stirred it long enough they will harden within thirty minutes and peel off the wax paper very easily. The official instructions would say to let harden overnight. I’d say there is no chance that I’ve ever gone that long. As soon as they can peel off the paper I’m “testing” a few.
This recipe will make about two dozen pralines. Feel free to raise or lower the amount of pecans. Just remember, they aren’t really pralines without pecans. I hope you find as much joy as I do in sharing pralines with those around you. The world needs more smiles and I’ve yet to see someone NOT smile when eating a praline. May you and your family find many blessings in the New Year. And now that I truly appreciate the opportunity you give me to assist with all of your precious metals investments.
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Top 3 Rarest Carson City Mint Coins
Posted on- 1870-CC Double Eagle
- 1871-CC Double Eagle
- 1876-CC Twenty Cent Piece
Many collectors only dream of owning a coin with the famed “CC” mintmark, which stands for the Carson City Mint in Nevada. The western mint was operation for a mere 21 years of remarkable Wild West history. Here’s how it all began…
In 1857, Henry Comstock laid claim to what eventually became known as the giant Comstock Lode in Nevada. Many prospectors struck it rich at this lode. Word of the silver discovery spread quickly and with more people came the need for coinage. Soon, demand for a second Mint in the West was strong.
Nevada was isolated from the rest of the nation. Transporting raw metal to the San Francisco Mint was challenging and dangerous. The railroads had not yet been built into Nevada, which meant the only way to transport precious metal for processing was on horseback or a mule train.
In 1870, only six years after Nevada became a state, the historic Carson City Mint opened its door to process the huge amount of silver and gold being mined in the area. The Carson City mint primarily struck silver coins due to the large silver lode nearby. Due to the scarcity of gold coins struck at the Nevada branch mint, all Carson City gold coins are hard to find and avidly sought after by numismatics. Here’s a look at the top three rarest coins produced at the Carson City mint.
1870-CC Double Eagle
For nearly a century, the U.S. produced gold coins worth $20. These “Double Eagle” coins were minted from 1849 to 1933.
Today, the 1870 Carson City $20 gold coin is the rarest and most valuable Double Eagle in existence. The 1870-CC Double Eagle is also the most famous and highly sought after gold coin struck at the Carson City Mint. This impressive rarity is listed as one of the 100 Greatest U.S. Coins.
The 1870-CC Double Eagle boasts a miniscule mintage of only 3,789, and there are only 41 known survivors today in all grades. Simply put, there is no such thing as a common Carson City Double Eagle. Every date is considered scarce and valuable. Considering the infrequency that this extreme rarity emerges on the market for sale, it’s no wonder that this owning this coin remains only wishful thinking for most collectors.
1871-CC Double Eagle
The 1871 Carson City $20 gold coin is only the second double eagle issue from this fabled frontier era mint with a tiny mintage at 17,387. Indeed, the 1871-CC Double Eagle is widely considered to be the second rarest $20 gold coin from the Carson City Mint, after the famous 1870-CC Double Eagle. Legendary numismatic David Akers notably said the 1871 Carson City Double Eagle ranks in the top 15% of all double eagles for overall rarity.
Coins minted in Carson City typically immediately entered circulation as coinage was sorely needed to fuel the growing economy in the region. Because of this, most Carson City survivors are typically well worn and no doubt could tell many tall tales if they could talk of the rough and tumble times in the Wild West. James Barton Longacre designed this exceptional coin.
1876-CC Twenty Cent Piece
Called by some, the “Duke of Carson City coins,” the 1876-CC twenty cent piece is a highly desirable western rarity. The Carson City Mint only produced 10,000 twenty cent pieces—also known as “double dimes”— in 1876.
As the story goes, in January 1876, the Carson City Mint Cashier reported that he still had 4,261 twenty cent pieces from the previous year in his stock. That represented more than enough to cover circulation demand for some time. So, in May 1877, Mint Director Henry Linderman sent this message to the Carson City Mint.
“You are hereby authorized and directed to melt all 20-cent pieces you have on hand, and you will debit ‘Silver Profit Fund’ with any losses thereon.”
Thus, a majority of the 1876-CC twenty cent pieces were lost forever. Today survival estimates of these impressive coins in all grades is a tiny 19.
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The Intrigue Behind The 1913 Liberty Head Nickel
Posted on — 2 CommentsThe 1913 Liberty Head Nickel, one of the most valuable coins in the world, also has one of the most mysterious backstories in American numismatic history. No one knows exactly how, when, or why these legendary coins were struck.
Today, there are only five known 1913 Liberty Head Nickels in existence. One is housed at the Smithsonian, a second at the ANA Money Museum in Colorado, and the remaining three 1913 Liberty Head Nickels are in the hands of private collectors.
These ultra-rarities rarely surface for sale and when they do it is a major numismatic event. Our firm, Blanchard placed a 1913 Liberty Head Nickel with a collector in 2004.
The History
The story behind the 1913 Liberty Head Nickels is sprinkled with both intrigue and scandal. In 1912, the U.S. Mint retired the Liberty Head Nickel and replaced it with the Indian Head (Buffalo) nickel design. However, five Liberty Head Nickels were struck either by accident or on purpose – and then kept secret.
As one theory goes, someone in the wee hours of the night at the Philadelphia Mint, struck these five surviving 1913 Liberty Head Nickels before the dies were destroyed in preparation for the change to the Buffalo Nickel.
Numismatists embrace this theory, as the five known coins reveal evidence that they were made from the same high-quality dies that produced Liberty Head Nickels since 1883. Yet, while it could have been an accident, many historians believe these five rarities were minted by Samuel W. Brown, a U.S. Mint employee in Philadelphia.
Here’s why.
The existence of these five coins remained a secret until 1919 when the statute of limitations for prosecuting the mint official expired. Convenient, right?
It became public that Samuel Brown, of North Tonawanda, New York had possession of the five nickels. Despite already having them, Brown placed an advertisement in the periodical: The Numismatist, offering to pay $500 each for 1913 Liberty head nickels. Later he raised the offer to $600. Brown knowingly was creating hype around these coins, which he later displayed at the 1920 ANA convention before selling the pieces to a Philadelphia dealer.
Highly Sought-After Coins
Today these coins are indeed a holy grail for numismatic collectors because they were produced in 1913 at the Philadelphia Mint, without official permission. That year, only the new Buffalo nickel design was supposed to be minted. But somehow, these five Liberty designs were elusively produced.
King Farouk of Egypt, an avid coin collector, reportedly owned two different 1913 Liberty Nickel specimens in his world-renowned coin collection at different times.
The notoriety and fame of these coins have crept into pop culture as well. In 1973, an entire episode of the TV show: Hawaii Five-O featured the 1913 Liberty Head Nickel as it was about to be auctioned off at a coin show in Hawaii, while a European master criminal attempted to switch the authentic version with a fake. We won’t tell you what happened, you’ll just have to watch the episode called: “The 100,000 Nickel.”
In recent history, a U.S. Ambassador, Henry Norweb, claimed ownership of one of these nickels, as did L.A. Lakers owner Jerry Buss. Each time a 1913 Liberty Head Nickel came onto the marketplace and changed hands, the price went up. In 2022, one sold for $4.2 million.
The Design
Charles E. Barber, the sixth Chief Engraver of the United States, designed the now famous 1913 Liberty Head Nickel. Barber had a long and prolific career as a coin designer. Today, one of his best-known coin designs is the Liberty Head coins including the “V” Liberty Head nickel, known for the large V on the coin’s reverse.
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Gold soars as Fed pencils in 3 rate cuts in 2024
Posted on — 1 CommentThe Fed Starts Talking About Rate Cuts
Breaking news. The Federal Reserve started talking about interest rate cuts for the first time today during this monetary policy cycle. At the conclusion of the Fed’s two-day meeting Wednesday, the central bank held interest rates steady as expected at 5.25%-5.50%. This marked the third consecutive Fed meeting where the central bank stood pat, suggesting the interest rate cycle may have peaked.
Gold surged after the meeting, which revealed that Fed officials expected three interest rate cuts in 2024. Gold traded as high as $2,016.80, up $37.10 this afternoon.
All eyes were focused on the Fed’s latest economic projections, known as the “dot plot,” which signaled a drop in the fed funds rate to 4.6% by the end of next year, which is lower than the September forecast of 5.1%. The lower interest rate forecast is supportive for gold and opens the door to a new rising price cycle for precious metals ahead.
Fed changed their tune on inflation
The Fed also changed the way it discussed inflation at the end of today’s meeting. For the past six meetings, the Fed has said “Inflation remains elevated.” Today, that sentence was revised to “Inflation has eased over the past year but remains elevated.”
It’s a subtle change, but in Fed-speak it says volumes.
Inflation has come down but…
Inflation has come down from its peak at over 9% during this economic cycle, but still remains above the Fed’s 2% target. Earlier this week, we saw fresh inflation numbers. The annualized Consumer Price Index rose 3.1% in November over the last 12 months. Drilling down, the monthly CPI figure rose 0.1%, which showed that inflation was slightly hotter than expected, as economists forecast for unchanged reading.
The future is bright for gold
Investors bought gold after today’s Fed meeting and the current uptrend has farther to go. Recent forecasts from major Wall Street players call for new record highs in gold in 2024. JP Morgan expects a series of interest rate cuts between the second half 2024 and the first half of 2025 which they say could lift gold to $2,300 an ounce. Bank of America is even more positive on gold. They say, if the Fed does begin to slash interest rates in 2024, that gold could climb to an impressive $2,400 an ounce next year.
As the year comes to a close, it’s a good time to consider, do you own enough gold?
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Top Three Oldest Mints in the World
Posted on- Lydia: 7th century BC
- Monnaie de Paris: AD 864
- British Royal Mint: AD 880
Today the U.S. Mint is the largest mint in the world, producing as many as 28 billion coins in a year. The Philadelphia Mint stands as the largest physical site in the U.S., which covers over 650,000 square feet and can produce up to 32 million coins in a year. However, there is a rich history of coin production that spans thousands of years. Here’s a look at the three oldest mints in the world.
Lydia: 7th century BC
Historians believe the oldest mint in the world existed in the ancient kingdom of Lydia in the seventh century BC. While the name of that mint has been lost throughout history, the oldest coins on the planet were produced there. Today, the coinage of the Lydian kingdom is known mostly for the coins of its last king, Croesus (561–546 BC). Croesus produced both gold and silver coinage. Earlier Lydian kings, however, produced electrum coins, which were made of an alloy of gold and silver with a dash of copper added to harden the coin. The royal Lydian coins created the first known series of coins in the Western hemisphere and these early coins served as a model for all subsequent gold and silver coins throughout time.
Monnaie de Paris: AD 864
The Monnaie de Paris in France is the world’s oldest continuously running mint, founded in AD 864 and it is also the world’s eighth-oldest company. In 864, King Charles II, also known as Charles the Bald, issued an edict to create a Parisian monetary workshop attached to the Crown. The King issued this edict in an attempt to concentrate the power to mint and issue currency under the Throne, making currency production a State Power. Previously, the King shared the power to mint currency with a variety of lords, barons and ecclesiaticals from the provinces. In the early days, the currencies were hand-minted using a hammer. It wasn’t until the reign of Louis XIV at the end of the 17th century that mint production advanced to a screw press, which allowed for the currency minting to become more standardized.
British Royal Mint: AD 880
Similar to the French mint, the British Royal Mint was founded in part to centralize coin production, in this case from all of Great Britain, the United Kingdom and all nations across the Commonwealth. In 880, the Royal Mint produced its first coin: an Alfred the Great silver penny, which was struck during the resettlement of London after the Viking occupation. In 1279, the Mint moved to the Tower of London, which was known as “the little tower where the treasure of the mint is kept.” In 1489, the Royal Mint produced its first sovereign coin: King Henry VII decreed a ‘new money of gold’ to establish the might and power of his reign. Today, the Sovereign coin is still known as the “coin of the monarch” and remains one of the Royal Mint’s flagship coins. In 1662, King Charles II introduced new production methods at the Royal Mint. Coins were then produced using horse-drawn rolling mills and screw presses instead of the previous hand struck method. Notably, in 1696, Isaac Newton Isaac Newton was appointed Warden of The Royal Mint, and he became the Master of the Mint in 1699, a post which he held until his passing in 1727.
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The Indian and Chinese Connection to Gold
Posted onIn 2023, India overtook China as the most populated country in the world, with a total of 1.428 billion people. China is a close second at 1.425 billion citizens. Compare that to the United States of America’s total population at 335 million. This matters to the gold market because Asian demand from India and China make up nearly 50% of global gold demand. 
A Little History
During the last half of the 1900’s, Chinese citizens were banned from buying gold, halting a long-standing cultural tradition in that country. However, as the Chinese government began easing those restrictions in 1990 and by the early 2000’s the gold market was completely liberalized. China’s annual gold consumption surged during that time period from just over 375 tons in the early 1990s to a record high of 1,347 tons in 2013. Since then, China has ranked year after year as the world’s largest gold buyer.
As the Chinese economy grew and modernized that helped provide fuel for fresh gold demand as Chinese citizens became wealthier. “This surge in demand was not just an expression of exuberance by Chinese investors free to buy gold. It was also driven by explosive economic growth, rapid urbanization and the desire for a simple alternative to the limited range of investments available domestically,” the World Gold Council explained.
China’s Central Bank is Steady Gold Buyer
Today, it’s not just Chinese citizens that are buying gold, the Chinese government has been steadily stockpiling gold over the past year. In October, the People’s Bank of China added to its gold holdings for the twelfth consecutive month in a row. In October 2023, the PBOC bought about 740,000 troy ounces, according to official data, which is equal to about 23 tons.
Indian Gold Buying Traditions
In October 2023, Indian citizens celebrated two major Hindu festivals: Dussehra and Diwali. This is a time period when buying gold is considered auspicious. India’s gold imports in October surged to a 31-month high, marking a 60% increase from the previous year. Indian citizens traditionally buy and hold gold. The precious metal is interwoven into the cultural fabric of the nation and is included in marriage ceremonies and other cultural rites.
India is the world’s second largest consuming gold nation behind China. In India, gold is not a luxury item, but a valued asset that is also a basic form of savings and wealth preservation, especially for families in rural areas. In India, even the poorest citizens buy gold. One in every two households in India purchased gold within the last five years, according to an ICE 360 survey. A total of 87% of Indian households own some amount of gold. Two-thirds of India’s gold demand comes from rural areas, where most people live outside the official tax system.
The Eastern Approach to Gold Buying
People in the Eastern half of the world have long retained a world view around gold with the knowledge passed down from their ancestors who saved in gold for centuries. They learned that gold doesn’t lose its purchasing power and is a store of value and a wealth building tool for future generations. This is ancient wisdom that many Americans still haven’t fully acted upon. Have you?
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Benjamin Franklin’s Masterpiece: The Libertas Americana Medal
Posted onThe Libertas Americana medal, conceived and authorized by Benjamin Franklin, was a tribute to American independence and France’s support in that valiant endeavor. The medal’s dramatic imagery on the reverse symbolically retells the story of the American Revolution, with the dates 1777 and 1781 inscribed to represent the two greatest American victories at the Gates of Saratoga and Washington at Yorktown.
Notably, Franklin commissioned the creation of this medal on his own, not on the authority of the Continental Congress. French artist Augustin Dupré designed the medal according to specifications from Benjamin Franklin. The medal was struck in Paris, as our young nation had no minting facility at that time that was able to produce such detailed work. The dies were completed in 1782 and the first medals were struck in 1783.
Today, the exceptional Libertas Americana medal is valuable and highly prized. It is legendary throughout American numismatic circles and beyond, not only for its historical significance and its arresting grandeur, but for the fact that Franklin personally handled each of these medals.
In April and May 1783, Franklin mailed his medals to recipients’ far and wide in the United States, France and beyond, including to members of George III’s government and the Grand Master of the Knights of Malta. Franklin also mailed a bundle of his medals to Philadelphia to distribute to the members of Congress, including a silver one for Congress’ president and future Mint Director Elias Boudinot. Indeed, his postal accounts reveal that in April 1783 he twice hired a carriage to special deliver his medal to the recipients.
Those who received the medals cherished them and Franklin’s mailbox filled up with thank you notes from across the continent. Thomas Jefferson had one on display at Monticello, inventoried as “a medal by Dr. Franklin.” The renowned Dutch artist and mint master Johann-Georg Holtzhey implored a friend to write to John Adams to inquire how he and his friends could obtain one. While not officially a part of the Comitia Americana medals, the Libertas Americana medal has been included in this group ever since Thomas Jefferson chose to place one in George Washington’s set of Comitia Americana medals in 1789.
On the medal’s reverse, the celebrated narrative features the infant Hercules, who represents the United States of America. A leopard, representing England, leaps with two serpents to attack Hercules. A fully armed Minerva, representing France, defends baby Hercules while he strangles the two serpents, under her protection, in fully struck detail.
The medal’s obverse features a head of Liberty with flowing hair, facing right, a freedman’s cap atop a pole in the background. This was used as the inspiration for some of the U.S. Pattern coinage of 1792 and for the first U.S. Half Cents in 1793.
Silver versions of the Libertas Americana medal are extremely rare. Bronze versions are more common but still valuable and highly coveted. Most survivors today were owned by non-collectors who cherished these meaningful medals, and they were often handled, displayed and cleaned, so today few exist in Gem condition.
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How Emerging Markets Will Support Gold’s Future
Posted onToday, close to two-thirds of the global demand for gold comes from emerging markets. The two largest players in this segment are China and India. China’s annual gold consumption averages about 1,120 tons per year while India’s is roughly 800 tons.
This means that understanding the future of gold as an investment requires a clear picture of what the future of these two countries holds.
Here, we look at the major economic initiatives driving the development of China and India and the implications of those plans for gold investors.
India
India’s ascent remains strong. At their current trajectory, they are well positioned to surpass the US and earn the title of the second-largest economy on the globe in the coming decades according to research from PwC.
The researchers project that India’s share of world GDP will surge from 7% to 15% by 2050.
A key trend underpinning this growth is the mass urbanization of the country. Research from McKinsey supports this idea with the authors explaining that “it’s clear that when urbanization rates in districts or in states cross the threshold of about 35 percent, that’s when we start seeing productivity benefits kick in.” This phenomenon fuels emerging economies because large city centers are what tie a country into the global economy and ultimately lead to a rise in GDP per capita.
Moreover, with increased urbanization comes robust infrastructure growth as demand rises for schools, housing, and hospitals. Bringing these kinds of infrastructure projects to life creates additional jobs for manufacturers, contractors, suppliers, and builders.
Cumulatively, this outgrowth tends to increase spending power among consumers which, in turn, leads to increased demand for luxuries like electronics and jewelry both of which require gold.
China
China’s economic growth has exceeded the global average for much of the last 15 years. Recent projections from the IMF show that the country could become the top growth source for the world in the next five years with “the nation’s slice of global gross domestic product expansion is expected to represent 22.6% of total world growth through 2028,” according to reporting from Bloomberg. Like India, this growth is likely to increase the spending power of the considerable consumer base in the country.
However, at the same time, some believe that China’s economic future is uncertain given the collapse of the real estate market. And yet herein lies the power of gold; it can perform well in good times and in bad.
Consider that Chinese gold prices recently reached record highs as part of an extended rally as more citizens seek to offset the depreciating value of the yuan against the dollar. This comes amid the Chinese government’s decision to ask their largest banks to reduce deposit rates, in an effort to boost the economy. This action has prompted more citizens to seek other ways to preserve their money. Additionally, greater control over the purchasing power of the U.S. dollar has accelerated gold purchases.
The developments occurring within these countries can be just as influential to gold prices as many of the more talked about economic factors unfolding in the U.S. like inflation, interest rates and robust GDP growth.
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The Relationship Between the Price of Gold and the 10-Year TIPS Yield and Why it Matters
Posted on — 1 CommentFor more than 15 years, there has been a stable, inverse relationship between gold and US bond yields adjusted for inflation. Typically, higher Treasury yields have the effect of bringing gold prices down because gold, which has no yield, is less attractive in comparison.
Between 2006 and 2021, the correlation coefficient between the two has been -0.933 indicating an almost completely opposite relationship.
Today, that’s changing.
The breakdown of this correlation seems strangely fitting in today’s setting of anomalies. Consider, for example, that bonds, which tend to rise as stocks fall, are now rising alongside equities. The combination of higher rates and lasting inflation has disrupted this tendency and today the correlation of returns for the S&P 500 and long-term Treasury bonds is at a two-decade high. North is South. East is West.
The normally reliable correlation between gold prices and the 10-year TIPS yield has deviated as real yields have risen while, at the same time, gold prices have climbed amid increased geopolitical risk brought on by the bloody Hamas-Israel conflict.
Adding to this is the fact that in 2022 central banks bought a record-breaking 1,136 tones of gold, worth roughly $70 billion. As the Financial Times remarked, this staggering amount of purchasing occurred because “countries aimed to reduce their reliance on the dollar after Washington weaponized its currency in sanctions against Russia.”
The change in this historical relationship has prompted some to ask, where do things go from here?
While it’s not clear if the two trend lines will realign, there are several reasons to believe that the price of gold could remain high. One such reason is that the gold market was very short. In other words, many investors held positions that stood to gain if gold prices fell. As the price of gold resisted that expectation, those same investors were forced to cover their positions. As a result, short positions recently dropped by 31,096 contracts to 89,605. In fact, this was the second-biggest ever short-covering rally on record.
Additionally, heightened levels of gold purchasing in China have led to a dramatic premium over international prices. In some cases, this premium was over $100 per ounce. This surging demand stems from falling property values, a major store of value for many Chinese citizens. The declining yuan has likely also contributed to increased gold purchases.
The key takeaway for investors is that the power of gold to serve as a safe haven in periods of instability and uncertainty is strong enough to break a decade-and-a-half trend that would normally see gold declining in price today.
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