January 2024 - Week 5 Edition

Several Major Institutions Jump on the “Gold Wagon”

Despite higher interest rates, several major banking and brokerage institutions are jumping on the “gold wagon,” perhaps in anticipation the Federal Reserve will lower interest rates this year – not at their meeting this week – but perhaps starting with their next meeting, in March.

Here are some of the newly converted Gold Bugs in America and other global financial centers:

UBS, a major Swiss bank, recommends buying gold if it trades below $2,000 per ounce – which it nearly did in the middle of January. UBS sees gold rising as high as $2,250 this year. If so, they see a revival of gold ETF buying after three years of ETF outflows, fueling further gains in gold.

America’s JPMorgan also says gold will benefit from rate cuts and rising gold ETF demand.

XIB Asset Management, a Canadian hedge fund, also sees higher gold prices: “Gold and other commodity-driven equities have traditionally performed well during the next stages of the credit cycle,” said XIB co-founder Sean McNulty in an email to clients, according to a Bloomberg report.

BMO (formerly Bank of Montreal, now headquartered in Chicago) does not rely on falling interest rates for gold to rise. They say that global currency diversification – away from the U.S. dollar – is the new key to the rise in gold, with Chinese gold buying being a major factor. (See next story).

China Remains Gold’s #1 Nation in New Gold Supply and Demand

Last year, China led the world in both new supply and new demand for gold. The supply side rose 0.84% to 375.155 metric tons, according to China Gold Association data released last Thursday. In comparison, China’s gold consumption was triple that level, 1089.69 tons, rising 8.78%, despite an otherwise slow economy.

Despite its latest economic problems, including deflation, a sagging real estate bubble, a stock market decline and a slow economy, China’s government and population remain obsessed with gold.

With their stocks and home prices falling, their private gold holdings have been the sole source of positive wealth accumulation for Chinese families. With China’s New Year coming on February 10 (the day before our Super Bowl), there should be an enormous demand for gold for gift-giving.

In addition, the People’s Bank of China (PBoC) has been the world’s #1 gold buyer since November 2022. In 2023, the PBOC added another 225 metric tons (+11.2%) to its reserves, now totaling 2,235 tons (as of December 31, 2023), and they will keep buying in 2024. 

So far in January 2024, gold is down 1.7%, but gold tends to move opposite to the U.S. dollar, and the U.S. Dollar Index (DXY) is up 2.3%, so gold is actually rising in terms of other world currencies. Gold often trades opposite to stocks as well.

The U.S. Dollar Was Devalued (and Gold Was Revalued +69%) 90 Years Ago This Week

It was 90 years ago this week that President Franklin D. Roosevelt revalued the price of gold up 69%, in a time of massive deflation – on his birthday, no less. On January 30, 1934, FDR signed the Gold Reserve Act, revaluing gold from $20.67 per ounce, where it had stood for almost 100 years, to $35.00 per ounce.

It was the Coin Act of 1834 – passed by the U.S. Congress on June 28 that year – that increased the 1792 gold-to-silver ratio from 15:1 to 16:1, thereby setting the $1.29+ silver price and $20.67 gold price that lasted for almost a century. However, in April 1933 the new president issued an Executive Order demanding Americans turn in their gold bullion and legal tender gold coins at $20.67 – under threat of hefty fines and/or jail time. Nine months later, FDR revalued their gold up 69% in deflationary times, and over the next 40-plus years, Americans were not legally allowed to hold gold bullion or legal tender gold coins. That changed in August 1974 when President Gerald Ford signed into law an act that, once again, allowed Americans to own gold coins, bars and certificates after December 31, 1974.

Gold Continues Its Growth Pattern

Gold rose from $2,025 to $2,038 early Monday morning, January 29, but then dipped back to $2,025, all in advance of rumors surrounding the upcoming meeting of the Federal Open Market Committee (FOMC) on Tuesday and Wednesday, when they are expected to make an announcement (but no change) concerning interest rate policies. Ironically, it was 90 years ago Tuesday that Franklin D. Roosevelt devalued the dollar and revalued gold by 69%, raising it from $20.67 to $35.00 per ounce.  Wouldn’t it be ironic if gold traded at $2,067 this week – 100 times its fixed value from 1834 to 1933?

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