Latest Gold PriceCome here to get the latest gold prices all in one place


0 DESPITE PRESSURES, GOLD HEADING ABOVE $2,000 – Neither Rain, Sleet nor Vaccine Will Keep It Down

Guest Writer to Gold Prices — Tags:  

By Dave Allen for Discount Gold & Silver

Gold is thee store of value in a world of fiat currencies.

So, the world's central banks have been buying gold for years, and that trend could drive the price up well over $2,000 next year, according to some experts. 

We know the biggest problem driving the price of gold is the ever-burgeoning stack of public debt, which the folks at ValueWalk believe could be exacerbated by inflation next year.

They recently reported Noble Gold founder and CEO Collin Plume's observation that central banks will have to bear to brunt of "government generosity." 

They'll do that by covering the costs of multiple stimulus packages that have subsidized businesses that haven't been able to function and their workers who've needed relief to survive during the lockdowns. 

However, much of that aid will need to be paid back, and that will cause major challenges for central banks - such as higher inflation and interest rate pressures.


According to Plume, 2020 is the second-highest year ever for gold buying by central banks. That's a trend that started picking up momentum in 2018. 

This year, central banks have already bought 651 tons of gold, and more central banks have been buying gold for its diversification benefits. This has pushed annual bank demand to its highest level since 1971.

"The most obvious countries adding gold to their reserves included Russia, China, Poland, Turkey, and Kazakhstan," Plume explained.

"Other countries, such as Poland and Germany, have begun to 'repatriate' their gold from other countries where it has been kept for safekeeping."

Plume added that the main reason central banks want to hold gold is because of the stock-to-flow ratio, which compares the newly mined gold supply (the flow) with above-ground stockpiles (the stock). 

He said newly mined gold keeps getting added to the stockpile, amounting to about 1.5% a year. In other words, gold has a natural inflation rate of about 1.5%.

"If gold were money, it would be physically impossible to duplicate the rate at which the printing of fiat currency takes place," Plume said. "Gold is finite, and as more 'currency' is printed, it becomes more valuable." 

Central bankers know this, so in anticipation of their stepped-up money printing, they buy gold as an offset - a simple matter of supply and demand.

Plume points out that with the national debt hitting a new high of $27 trillion, it's simply unsustainable to keep printing more money.

For this reason, he expects the price of gold to climb above $2,000 and stay there starting next year. 


RBC analyst Christopher Louney also thinks gold's positive story is still evolving. He noted that gold's price has corrected recently because of news about a successful Covid vaccine.

Louney pointed out that 2020 has been a year of uncertainty, which has included a pandemic, a global economic crisis, heightened political tensions and plenty of other drivers that have been positive for gold.

But better than expected data from the Philadelphia Fed, showing optimism in the manufacturing sector, has also helped to keep pressure on gold prices.

Yesterday, the Philly Fed said its manufacturing business outlook fell to a reading of 26.3 in November, down from October's reading of 32.2.

However, output beat expectations by a fairly decent amount, as consensus forecasts were calling for a reading of around 22.

The report said, "The survey's future indexes also moderated this month but suggest that growth is expected to continue over the next six months."

"[Louney] sees a potential high price for gold in 2021 of $2,068.....that's 10% above [today's] price of $1,874..."

The survey also showed surprising growth in the labor market. The number of employees index more than doubled to 27.2 from October's reading of 12.7.

Another positive for the gold market: inflation pressures are also on the rise. The report said that the prices paid index shot up more than 36% from October's reading of 28.5 to 38.9.

Even though the precious metals markets have appeared to be resilient, Louney doesn't believe investors have gotten over their fear. 

Louney sees recent trends as "a reset of gold-related pandemic expectations, a repricing of stimulus expectations by gold investors, a realignment of inflation fears and a shift in mindset around post-election political uncertainty." 

He said the reset could help gold find a new equilibrium and noted that even after the first shipments of the vaccine, there will still be challenges in distribution and uptake, which means the health crisis won't end right away.

He sees a potential high price for gold in 2021 of $2,608. That's 10% above its price of $1,874 at 2:00 p.m. Eastern time today.

Leave a comment

Security Code:

Powered by Yahoo! Answers