Recently, President-elect Joe Biden announced a plan to spend $2 trillion during his first term in an effort to accelerate the adoption of clean energy in sectors like transportation and building. The plan is a major step in the renewed initiative to lessen, or even eliminate global warming.

The move is large enough to have ramifications across nearly every industry, including gold, because large scale mining operation require an enormous amount of electricity and fuel combustion.

It is difficult to envision a world that balances decarbonization with gold extraction, yet that is exactly what the mining industry is attempting to achieve.

A new report from the World Gold Council concluded that the emissions associated with gold mining are expected to fall by 35% over the next decade. This drop will come from a move away from coal, diesel, and heavy fuel oil to renewable resources. This transition presents some significant challenges. Numerous countries will need to work in cooperation. Therefore, regulations must change on a global scale to have a global effect.

A major factor in this plan is the number of mines which source power from the electrical grid. This part of the picture matters because the decarbonization of power grids could dramatically reduce the emissions of the numerous mines dependent on this source of power. In fact, in the World Gold Council’s analysis of 158 gold mines 57% relied on grid-sourced electricity. A change to the grid means a change to the emissions profile of many of the world’s mines.

An example of this phenomenon can be seen in Nevada where the emissions resulting from grid electricity are expected to drop by as much as 36%, due to a shift to greener resources. The report also concludes that the emission intensity of grid power will fall by 20% by 2030.

Given the scale of change needed, it is likely that any meaningful drop in environmental impact from mining will need to come in several moves. In addition to grid decarbonization, the emissions intensity of mines could also drop due to changes in asset mixes due to the gradual closing of mines that are particularly demanding of energy. It is inevitable that older mines will simple shut down as the cost of extraction rises while the available stores of gold fall. These closures may be accompanied by the opening of new mines which are likely to be built with greener energy resources from day one. Additionally, other mines will likely employ new technology to become more energy efficient. Finally, recent advancements in solar power technology will also enable mines to adopt hybrid energy sources which will reduce their overall emissions profile.

Gold mines understand that their success and survival is dependent on green resources. These new energy systems are not only imperatives for our future, they are fast becoming part of their business model. Green technology often presents opportunities to capitalize on lower operation costs in the long run.

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The value of gold surged in 2020. This performance has left many wondering how much further it can go in the coming year. Many believe there is room to run.

Given strong a strong previous 12 months, one might ask what could propel additional growth. The two factors that are most likely to drive gold prices up are low interest rates across the globe and the weakening US dollar.

In recent reporting from Societe Generale analysts projected that gold could reach as high as $2,340 per ounce within 2021 representing more than a 20% increase from prices today. In describing the basis for this estimate, the analysts remarked that “negative real rates, record levels of negative-yielding assets, expanding U.S. debt, a strengthening CNY and, eventually, potential flows into E.M. assets will pressure the U.S. dollar and be supportive for gold.”

Commodity analysts at ING share this bullish outlook. They believe that gold will increase further when a new stimulus package is authorized. They also believe that pent-up demand coupled with an increase in oil prices could lead to rising breakeven inflation which, in turn, is also supportive of rising gold prices.

Moreover, lockdowns earlier in the year, and those starting again, have likely prevented would-be gold purchasers from buying gold. Once the COVID vaccine begins to reach more of the global population throughout the first half of 2021 more people will finally be able to buy. ING expects gold to rise by about 9.4% in the forth quarter of 2021. Outside the US this demand is expected to be particularly strong as people buy for festival and marriage events.

Goldman Sachs has similarly high expectations for gold next year. Analysts there have a $2,300-per-ounce price target for gold. Part of the reasoning for this forecast is the fact that the Federal Reserve has indicated it is willing to allow inflation to rise above 2%. In this setting inflation may prompt people to hedge against the diminished buying power of the dollar. Finally, Goldman Sachs sees the incoming Biden administration as supportive of gold. The reason: a relaxed trade policy should support gold prices. 

Finally Bank of America is also optimistic about future gold prices. Their team expects gold to reach $3,000 per ounce citing that “the Fed can’t print gold.” This quote summarizes their perspective which is that gold will remain an attractive store of wealth as many factors diminish the power of normal currency.

The forecasters have made their outlook clear: even with a strong 2020 behind us, gold can still climb in value through 2021. Societe Generale, ING, Goldman Sachs, and Bank of America are all predicting a considerable rise in gold prices as the global economic picture for the next 12 months comes into focus. Clearly the time is now for those who felt they missed the opportunities of 2020. While the run-up has been substantial there is still time to participate in the continued rise of prices.

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Inflation affects us all.

If it feels like a dollar doesn’t go as far as it used to, you aren’t imagining it. You are experiencing the powerful impact from inflation.

Inflation is the steady rise in price for everyday goods and services – things like groceries, cars and homes – that’s known as the rising cost of living.

When inflation causes prices to rise, but our paychecks don’t, it reduces our purchasing power, and thus reduces our quality of life.

Inflation erodes your purchasing power over time.

A simple example is the price of milk. In 1913, a gallon of milk cost 36 cents. In 2013, a gallon of milk cost $3.53, nearly ten times higher in 100 years. The higher price of milk reflects, not a scarce supply, instead it represents the steady decrease in the value of money over time – due to inflation.

Inflation, while deadly to your pocketbook and portfolio, is silent and slow right now. It creeps steadily higher over the years almost without your noticing. Yet, over the course of years and decades – the power of inflation is profound. It severely reduces your purchasing power of your money.

Brief history of inflation in the U.S.

In recent years, inflation has been low. It hasn’t always been this way in our country.

The period from 1965-1982 is known as “The Great Inflation” in the United States. In 1964, inflation measured at 1% per year. By 1980, inflation climbed to an astounding 14%.

Notably, during this period, President Nixon halted the exchange of dollars for gold, severing the U.S. dollar’s link to a physical hard asset. That set the stage for easy money policies from the Fed and rampant inflation.

Looking back what have economists learned about the Nixon era: “Their larger error was that most often they wanted to increase money growth to reduce the unemployment rate,” according to the Federal Reserve Bank of St. Louis.

Fast forward to today. We are seeing the Federal Reserve doing the same and more!

U.S. money supply growth has skyrocketed.

Figure 1: Rising Money Supply Growth

Look what rising money supply growth has done to the purchasing power of the U.S. dollar in Figure 2.

Figure 2: Falling U.S. Dollar Purchasing Power

It’s not rocket science. As the Fed creates more and more U.S. dollars, their value decreases.

For you – that is inflationary. You need more dollars to buy the same good or service.

What can you do to protect your financial future?

For thousands of years, gold has been a proven store of value. While the purchasing power of your dollar declines, the value of gold is rising. See Figure 3.

In 1975, one ounce of gold cost $35. In 2020, one ounce of gold costs $1,875.00.

The value of your dollars is decreasing.

Gold is a proven store of value. For thousands of years gold has not only held its value , it’s become more valuable – the exact opposite of U.S. dollars! Gold has a limited supply, it is very difficult to mine and experts say we are close to peak gold, or simply running out. While the Federal Reserve simply prints more U.S. dollars – all the time!

Could we see higher inflation ahead?

Yes. History guarantees it. Even more, the Federal Reserve’s policies over the past decade have created the perfect storm, not only for run of the mill inflation, but hyperinflation.

The national debt now stands at over $27 trillion. Who’s buying all that debt? Indeed, it used to be China and Japan, but no more. Foreign buyers used to hold more than half of outstanding U.S. Treasury debt. Times have changed. In 2020, the Federal Reserve stepped in to be the buyer of last resort.

How is the Fed funding its bond-buying purchases? It’s printing new dollars out of thin air. Yes, that’s right. Essentially, the U.S. Treasury is selling bonds (issuing debt to raise money) and the Fed is printing money to buy them. 

What could go wrong with this? Stay tuned. Next week we’ll show you the charts you need to see.

It’s surprising how many investors today disregard the impact of inflation on their retirement savings, their portfolios and their financial future. Don’t make that same mistake.

What are you doing to protect your financial security?

These unprecedented economic times call for action. The Fed’s money printing and the rising federal debt is a ticking time bomb for your financial future.

If you want to protect your retirement savings, your hard-earned dollars, consider increasing your allocation to physical gold. Why keep your wealth in an asset that is declining in value like dollars?

If you are unsure how much you need to allocate to physical gold to protect your financial future, please talk with a Blanchard portfolio manager today for a personalized portfolio review and recommendation matched to your unique personal situation.

Follow Our 3-Part Series

Check back next week for the second installment of our in-depth three part series on inflation. The causes, the impact and what you can do to protect your financial future.

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