More Room to Run: Why Gold’s Story Isn’t Over

MIKE BARNES 0:10

Welcome to America’s Gold Authority Podcast. My name is Mike Barnes. The question of the day is when is gold going to go back up? Over the last 12 months, it’s been anywhere from $3,300 to $5,500 an ounce. It’s in the middle right about now, but is it going to go back up very soon? We’ve talked about the Iran War keeping it down. What does the future hold? Let’s bring in a couple of experts and find out. Philip Diehl and Brad Chastain joining me now. And Philip, I want to start with you. As the 35th Director of the United States Mint, president of U.S. Money Reserve, is it all about the war? And will this war ever end to let gold skyrocket back up?

PHILIP N. DIEHL 0:49

Yeah, it’s not all about the war. The war certainly is a factor because the uh closure of the Strait of Hormuz has uh has is the biggest interruption to oil supplies, energy supplies in history, certainly in modern history. Uh it’s having an enormous impact on global markets and on prices. We’re fortunate here in the United States that it hasn’t had as big an impact. It’s been big, but it’s not as big as in Europe and in Asia because we’re blessed with our own uh oil and gas supplies. We actually are a net exporter. And uh also we have uh a huge strategic petroleum reserve. The reality is, though, uh that those petroleum reserves are at the lowest level they’ve been in decades, and there’s only so much more that can be drawn from them. We’re getting close to uh what is the effective bottom of the reserves. And so uh the uh cushion that we’ve had in the past, not only here but around the world, uh is uh almost gone. It’s not totally gone, but it’s almost gone. So uh oil prices look like they could be headed up. If this war is not concluded soon, then we’re gonna see um a gradual increase and then a spike in oil prices. And and there are estimates between $150 and $200 a barrel uh once that day comes. When that day comes is uncertain. Of course, uh policymakers in the oil industry don’t like to completely reveal uh all that they know, but uh we’re seeing uh estimates as early as July or August when uh that day comes. Uh and then in the fall, there are interruptions to U.S. refinery schedules, production schedules that are on the horizon that are gonna keep prices extended longer, even if the uh the strait were to open tomorrow. Uh but we’re we’re not looking for a prospect for that. I think the expectation that we’re gonna see a settlement uh right around the corner is basically gone now. Uh it may come, but uh it’s not gonna come uh tomorrow or next week, uh, most likely. Um but the but longer term, and I think this is the crucial thing to bear in mind, longer term, all of these forces that are aligning look like they’re gonna support gold. Uh sovereign debt in particular is gonna be a driver for uh of gold prices. And so I think this is an excellent opportunity. We’ve seen gold fall off by as high as it’s uh spiked as high as $5,300 an ounce. We’re seeing it right around $4,500 an ounce. It’s been trading then in that area for a while. I think this is sort of the classic uh situation of buy on the dip. This is sort of longer than uh you typically think of as a dip or on a plateau. But I think we’re going to leap off this plateau uh uh this year, and I think we’re gonna be headed back up, uh, probably at about the same trajectories we have seen over the last couple years.

MIKE BARNES 4:19

Philip, I like your attitude about buying at the dip. But you said something earlier that I really want to follow up with with Brad Chastain, with all the research, Brad, that you do for U.S. money reserve. A longer drawn-out war in Iran is going to affect us, I think, more than a lot of people think. Do you agree?

BRAD CHASTAIN 4:37

Yeah, I do. Um, I mean, it’s specifically with the energy, but eventually we get into even crops with fertilizer shipments, right? Um, you know, a lot of the fertilizer for the United States had fortunately made its way out of the strait prior to the war for the at least the spring planting season. But if it continues to dry out, it could run into supply chain bottlenecks for next season, and it’s already driven fertilizer prices up, which translates into higher food prices. The longer this draws out, the law the more these buildups take place, uh the more to Phillip’s point, oil goes up. That translates into higher prices everywhere else. Um, it’s not good on its face for markets as more money that is used, available liquidity or pool of available money, gets used for higher prices and real economy. A lot of it is also being pulled from financial markets to go into the capital expenditures for AI build outs and things like that. That’s actually money drained from financial systems because there’s only so much liquidity out there. It can go to the real economy for higher prices and capital expenditures, or it can go into financial markets. And for the last couple decades, we’ve seen so much of it go to financial markets as we were talking um, you know, last week on Federal Reserve building up balance sheets, and a lot of that made its way into the financial markets versus real economy. Now we’re seeing more of it go into the real economy. So it’s it’s going to be uh an interesting ride for financial markets specifically, even if the actual real economy kind of plods along through this period.

PHILIP N. DIEHL 6:18

Uh Mike, there’s something I’d like to follow up on that, and that is that there are always trade-offs in any policy decision or in any business decision, you are always weighing trade-offs. And that’s one thing that I don’t think the Federal Reserve in the talk about regime change has really faced is the trade-offs in draining liquidity by changing the balance sheet, tightening the balance sheet, what that means uh both economically and politically here in the United States. Something like the the number that I’ve seen varies, but a huge portion of GDP growth in the United States is related to AI. And AI, and what we’re seeing with AI is huge capital expenditure requirements. And uh and I think there’s a good case to make that uh certainly GDP growth would be a lot lower now, and we could be talking about being on the edge of recession right now if it were not for AI. And if we drain a bunch of liquidity out of the marketplace, then that’s going to make it hard for AI to keep uh plowing ahead and keep driving economic growth. And of course, economic growth lies at the heart of any incumbent party’s interest in the economy. If the economy falters and slips into a recession, or even if it’s just dead in the water, then the incumbent party really has a problem. And of course, the White House has been focused, as any White House would be, on getting interest rates lower than the interest rates that matter to businesses and consumers. And that’s a trade-off here. Um if uh the uh if the federal funds rate is raised or if the balance sheet is tightened, then we’re gonna see uh increasing difficulty with AI maintaining its growth rates and uh propping up GDP growth, I think.

MIKE BARNES 8:31

Philip, that reminds me that we talked last year about it being a perfect storm for gold, which is why it went up and up and up and up. And as we look to buy the dip, as we call it, right now, with gold low in comparison to the way it was six, seven, eight months ago, is it tough to find the perfect time? Because I think a lot of people go, well, it was down fifty dollars, maybe I should buy today. Ooh, what if it goes down fifty more dollars today? Maybe I should wait. But by waiting like that, I like to say a watch pot never boils. And going ahead and jumping in knowing that it’s going to be an increase later is a good thing, correct, Philip?

PHILIP N. DIEHL 9:07

Uh it’s always a mistake to try to perfectly time a market. I mean, buying the dip is one thing. Uh and but uh and that makes a lot of sense when the opportunity arises. There’s there and there’s lots of examples of this in uh gold. Is if you waited to buy the dip, you missed a huge opportunity to ride uh gold prices up even with the dip. When it dips, that is an excellent time to buy. What we’re seeing here is a temporary plateau for gold prices running right around $4,500 an ounce, plus or minus maybe $500 for uh the last 60 days or so. And so I think no, $50 an ounce, uh hundred dollars an ounce, no, doesn’t matter. This is the time to buy, especially even if you’re buying for the short term, if you’re buying for the next uh six, twelve months, now is the time to buy. Of course, most of our customers buy and hold for the long term. And in that case, it makes no sense whatsoever to wait. Uh, you want to buy now and you’re holding for the long term. And we’re seeing estimates, I think these are highly credible estimates of prices within the next four years of being $8,000 to $10,000 an ounce. Uh at $4,500 an ounce, yes, I think this is the time to buy.

MIKE BARNES 10:41

Brad, are we skewed by those short-term investors who last year bought in August and then sold in October and got a 30% return? And oh my goodness, that’s so great. But a lot of us are long-term investors. We’re looking at it in the long haul, and we need to look at the price again, not looking at it today, and what’s going to happen five, 10, 15 years from now.

BRAD CHASTAIN 11:02

Yeah, that’s it’s so critical to zoom out and look at the the long-term trajectory. Um, the short term, when you look at over the few months, yeah, it gets the headlines. People feel it emotionally, psychologically. But when you look at it five, six, ten years down the road, it’s a little blip on the radar. Um, you wouldn’t, at the end of the day, care if you bought at the prior peak or right now at uh the dip in the long run, it you’ll end up being perfectly fine. Way too many people get caught up in trying to trade and to Phillips point time. And there is credible study from pretty much every financial um institution in the world showing that timing ends up being a losing strategy over the long run. People feel like, hey, I’m missing out, and they end up buying high as things are running up. And then when things are moving in the other direction, people get scared and say, well, it’s going down. I don’t want to buy something that’s going down. And when you see the long-term trajectory and you understand how the world is evolving, you recognize those as buying opportunities. I mean, that’s what the best investors in the world do, is they take advantage of those opportunities where um, because the the prices are always kind of trading around the long-term um average and the actual value of where an asset should be, right? And right now there’s uh just for this very short window, a uh a lot of structural things, right? You have you’ve had this huge run-up, so you’ve had portfolios that, by their very own mandates, fund managers, whether they want to or not, had to rebalance out of gold because gold has gotten to be too heavyweight according to the written rules of how they allocate capital. And so they’ve they have ultimately had to sell. Uh, we’ve talked about the liquidity um around the world with the the war going on. Dollars are not circulating as well as much, and countries have had to defend their currencies. They store up reserves to be used when they are needed. And right now, gold is uh playing that role for some countries that are in a bind. Um, Russia with sanctions has been cut off of the global financial system. They have been selling gold to help fund the war. Uh they’ve spent decades building it up, and now it is helping to keep them afloat essentially as they’re going through this. We’ve seen Turkey recently sell gold to support the lira that has been collapsing. And so we see gold doing what it’s supposed to do for those that actually need it, is help protect them during these kinds of this time of tribulation. And it’s those kind of forced sells, they don’t necessarily want to, but they need to uh for people who are in a position to take advantage of the uh the opportunities and be the buyer during those times that are going to really be able to benefit in the long run. So I agree with Philip. These are the times to if you have that long-term perspective and you understand where things are headed, um, we embrace these kinds of um uh of pauses and slight pullbacks to be able to accumulate more at opportune times.

MIKE BARNES 14:06

And Philip, the words inflation and recession keep being used, but that won’t deter the price of gold rising in the future.

PHILIP N. DIEHL 14:16

No, it it won’t. Uh I mean, you know, you can I I like to look back at history and see what the I’m data driven. I like to see what’s happened under certain similar circumstances in the past. It’s not a foolproof guide, but it is instructive. And during the uh recessions of the uh last um, oh, I I guess it’s now about 36 years, going back to 1990. We’ve had five recessions since that time. So during those uh recessions, we’ve seen gold outperform uh stocks by a huge margin. So and that’s you know pretty much uh conforms with conventional wisdom, that gold is a hedge against recession. Uh and so uh in a recessionary scenario, and I think it’s highly likely that in the next 12 months we’re gonna enter a recession, um, it’s just uh it’s just hard to imagine that all the signals, all the warning signs that we’re seeing in the market are are misplaced. A recent inflationary period here between 2021 and 2025, in which gold outperformed stocks by two to one, 154% to 74 percent increase over those four years. Either scenario, gold has a huge advantage. And I think Brad is exactly right. I mean, you you look back at what the performance of gold has been over the long term, um, and you go back to uh back 25, 26 years, you can see that gold has outperformed stocks over that entire period of time. So these are these are these are are are public secrets. People don’t really talk about these. Financial advisors don’t really even know that gold has this track record that uh that consistently uh outperforms uh stocks.

MIKE BARNES 16:25

It is such a safe haven. You mentioned the word market, and I want to talk to Brad about that because Brad, I know you’ve talked about market risks are higher than economic risks right now. How does that affect us all?

BRAD CHASTAIN 16:38

Uh because most people’s wealth, especially in the United States, are is tied up in markets. Um and it it gets really confusing for people where markets don’t behave the way people think based on economies, uh based on the economy. And it can’t be understated, I don’t think, that the market and the economy are not the same thing. There are relationships, but they cannot be talked about in the same way, and it gets lost a lot. Even conversations Philip and I have quite frequently offline, uh nearly daily, we realize that uh, you know, on the back end we it seems like we’re disagreeing about something, and then reality we’re agreeing, but we’re talking about different things because more often than not, he’ll be talking about from an economic standpoint, and I talk about it from a market standpoint and what drives prices. And so there’s been plenty of times where economy has been relatively slow. I mean, since 2008, GDP growth rate has been slowing, um, but markets have been on an absolute tear. And this goes back to what we’ve been talking about about how the financial system actually works differently in the weather Federal Reserve and bank reserves and things work differently, and all of what people thought was going to be price inflation in the real economy when QE started and reserves went through the roof with all the so-called money printing, didn’t find its way into prices until we got to the supply shocks of COVID and more recently, um, it went into financial assets. And so when there’s not great places to invest and for banks to lend money into the real economy, um that extra liquidity finds its way into financial markets. And when the economy is stronger and you see more, for example, AI build out right now, that is actually money that um is going into real economy versus financial markets. Yes, it’s driven financial prices for AI companies specifically, but um but that these are these are different things, and so I think that’s important for people to be aware of with the market. When they have a view of an economy, it does not necessarily translate into better returns than otherwise would be for financial markets because the flow of money actually actually matters, um, and they’re sort of in competition. Now, uh behind the scenes too, as liquidity tends to grow, you tend to see both doing well, but it doesn’t flow evenly between the two.

MIKE BARNES 18:57

So Philip, two worlds colliding. You have you want to have the final word?

PHILIP N. DIEHL 19:04

Well, one thing we haven’t talked about really is is uh treasuries and uh and the role that treasuries have played as a safe haven. Uh it’s been the main, the major competitor to gold as a safe haven. And now we have a situation in which uh policy changes uh have uh in the US, security economic, trade policy changes in the U.S. has shaken global confidence in uh treasuries and U.S. monetary policy and sovereign debt, especially here in the U.S., how the U.S. debt has exploded and will continue to explode for the foreseeable future, and how uh that has also raised questions about the role of treasuries as a safe haven. And all of that, these sorts of question marks, it doesn’t really mean that the treasury market is going to collapse, but it does mean that uh an increasing number of factors are uh centering around treasuries. And that tends to make gold a stronger uh safe haven. So it’s not just the stock market, but it’s the bond market as well that is reinforcing gold’s uh prospects.

MIKE BARNES 20:28

Economy on one side, stock markets on the other side, safe haven in the middle is gold. Thank you so much, Brad Chastain, and Philip Diehl, for joining me today.

PHILIP N. DIEHL 20:37

Thanks, Mike. Thank you, Mike.

MIKE BARNES 20:39

I think we all agree, by the dip, gold rises in recessions, and it is a hedge against inflation. So no matter what’s coming in the near future, gold is the place to be. I think our experts have proven that. That’s all the time we have for today’s episode. On behalf of all of us here in the U.S. Money Reserve Studio, thank you so much for tuning in. If you have any questions or you want to learn more about today’s episode, you can call the number in our episode description and speak with one of our friendly account executives. They’re going to be more than happy to answer any questions you may have about precious metals and the strategic role they can play in achieving a secure and comfortable financial future. I’m Mike Barnes. We’ll see you next time on America’s Gold Authority Podcast.