Is $3,000 Gold really that outrageous?

Saxo Bank, the Danish online trading platform with $85 billion of client assets under management, publishes an annual list of what it calls “Outrageous Predictions“, which it self-deprecatingly affirms is “not about being right, but about being outrageous”. Despite the outrageousness, the annual letter to account holders has nonetheless got a respectable list of wins in its list. Among the correct calls from previous editions of Outrageous Predictions:

• In 2013, Saxo called the correction of gold down toUSD $1,200;
• In 2015, they correctly called Brexit;
• In 2017, the prescient rise in bitcoin was nailed;
• This year they have rather aptly pointed to a “raincheck for the end of fossil fuels”.

So when the bank pushed out the prediction for a gold price of US$3,000, my ears pricked up like Pavlov’s dogs; after all, I’ve been waiting for a further breakout to the gold price since our own prediction for “5 Things That Need to Happen for Gold to Hit $2,000” came partialy true in the 5th year after that call was made in 2014.

It took less than ten years for gold to sprint from a decadal low of $1050. Gold topped $2,000 for the first time in Q3 2020, so while a 50% jump within the space of 5 years would be alarming geo-politically, all the factors that could make such an event possible are in play.

Saxo’s Ole Hansen’s rationale is summed up as “2023 is the year that the market finally discovers that inflation is set to remain ablaze for the foreseeable future”.

Besides that very valid point, additional drivers of the gold price, that should one, two or more converge in the timeline of 2023 include:

• China’s possession of >$US1 trillion in Treasurys of various flavours presents an omnipresent threat to the stability of US bond prices;
• The increasing coalescence of an eastern, anti-US alliance in Saudi Arabia, China, Russia etc. could increase the appeal of gold if the war spreads beyond the border of Ukraine/Russia.
• The recent turmoil in the crypto space has an entire generation of investors re-thinking their  committment to the money they can just program themselves; especially as regulators incrementally reveal the contours of CBDC regulation, which look like they are designed to snuff out any chance of Bitcoin becoming anything more than a speculative digital commodity.
• The BRICS group of countries could exert upward pressure on the gold price if they successfully launch their own reserve currency.
• USD purchasing power, as expressed by inflation numbers, is a subtle alarm to investors with a historical perspective who, even though they can realize 4 percent on a 5-year US treasury, might be inclined to hedge their bets with a buffer hedge in gold.

There are many other potential factors that could drive a sudden jump to $3,000 gold. But the reality is that if gold does jump to $3,000 any time soon, there will likely be more pertinent issues at hand than the value of one’s portfolio.

Original article: Is $3,000 Gold really that outrageous?

©2022 Midas Letter. All Rights Reserved.

gold
inflation
commodity
reserve
reserve currency