After swinging around $2,650 per ounce early this fall, gold has risen by $100 in its relentless drive toward a new base of $2,700 per ounce.
This has been the pattern of the current rally, which started with gold rising from $1,810/oz. to establish a new base at $1,900, then resuming its climb and consolidating at $2,000. Soon thereafter, prices leapt to $2,300, then $2,400, then $2,500, and now we've set a solid base of $2,600/oz.
At each milestone, gold has consolidated support before making its next move upward, setting new all-time price records along the way. Prices have already cracked $2,700 per ounce recently, and I think it will soon establish that milestone as a new base.
Goldman Sachs agrees and projects gold to reach $3,150 per ounce in 2025. That’s right: a rise of $490 per ounce next year, on top of the $850 appreciation we’ve already seen in this rally.
In previous editions of this series, I’ve identified six forces that have formed a tag team driving this unprecedented rally.
These forces are: inflation fears, interest rate hopes, the strength of the dollar, central bank gold-buying, retail demand in China, and geopolitical conflict.
Why am I confident the rally has legs? Let’s look at the forces behind it:
- Concerns about rising world debt, which now exceeds $315 trillion, and prospects for a global tariff war are renewing fears about inflation. Worries about inflation often bolster gold prices.
- On the other hand, fears of renewed inflation and rising U.S. budget deficits are tempering hopes for lower interest rates next year. These hopes have been a force sustaining the current gold rally.
- Higher U.S. interest rates tend to produce a stronger dollar. A strong dollar makes gold more expensive for holders of other currencies.
- November’s price correction has drawn central banks back into the market. China, Turkey, and Poland made major purchases last month. The Czech Republic, Hungary, and Serbia also have been active buyers this fall.
- With a market share of almost 40%, China boasts the world’s largest retail gold market. Chinese buyers have been a major driver of prices during the rally, but they took a break when China’s central bank paused its purchasing over the summer. Now that the People’s Bank of China has returned to the market, we can expect Chinese retail buyers to do so too, especially since China’s currency, the yuan, appears set to weaken. A weaker yuan would make gold even more attractive to Chinese buyers since the yellow metal is the only reliable store of value available to most Chinese citizens.
And finally, there’s the matter of rising geopolitical conflict.
While we were enjoying family and football over the Thanksgiving holiday and bingeing on Christmas shopping, the world took a dramatic turn. A full appreciation of just how dramatic was easy to miss.
Regional conflicts in Europe, the Middle East, and East Asia went global. The most striking development was the sudden collapse of the Syrian regime and the rush of its neighbors to feed on the remains. A coalition of Syrian rebels, Israel, Turkey, and the Kurds claimed their shares as Russians fled Syria and took deposed President Assad with them.
This is a geopolitical disaster for Assad’s former benefactors: Russia, Iran, and their Middle East clients. It is a huge windfall for the United States and our friends in the region.
But there’s a dark lining on these silver clouds. The fall of the al-Assad regime further destabilizes a powder keg that has been ablaze since Hamas attacked Israel 14 months ago. The war has now engulfed seven nations in the region as well as Russia, the United States, and our European allies.
In East Asia, China grows increasingly aggressive in its trade policies and with its military around Taiwan and in the South China Sea, while one of our closest allies, South Korea, has fended off an autocoup attempt.
In the meantime, the war in Ukraine has expanded beyond the proxy war between Russia and NATO.
Now the conflict includes Iran (as a supplier of war materiel) and North Korea (as a supplier of soldiers and armaments). In exchange, Russia is thought to be providing support for North Korea’s nuclear weapons program, a dangerous development if true.
All the while, nations that form the core of NATO—the United States, Germany, and France—face significant domestic political uncertainty and instability.
I call these six forces a tag team because they rotate in and out of the ring, driving gold prices ever upward. Today, geopolitics, Chinese buyers, central banks, and inflation fears are in the ring. Falling interest rates and the dollar are outside the ring, but their time will come.
I agree with Goldman Sachs that gold is headed toward $3,150 per ounce, or higher, next year. Now’s the time to buy while gold consolidates at its current base of $2,600 before setting new highs in 2025, as it has time and again in 2024.
It’s not too late to profit while acquiring the wealth protection families have depended upon from time immemorial.
