March 2024 - Week 3 Edition

Gold Rally Catches Wall Street “By Surprise” Once Again

One of our long-time themes here is that Wall Street always seems to miss the first $200 or $300 (10% to 15%) of each gold rally by dismissing the value of gold until it sets a new cyclical or all-time record high. Then, Wall Street suddenly wakes up to the value of precious metals, buying at new peak prices instead of valuing their old standby advice of, “Buy low, sell high.”

That happened once again this past week, as The Wall Street Journal published a front-page feature article on Tuesday, March 12, entitled, “Big Gold Rally Surprises Wall Street.”

The primary fallacy on Wall Street, repeated in the article, is that gold goes down when interest rates go up, since gold offers no income. Yet, gold kept rising when the Fed raised interest rates from near zero at the start of 2022 to 5.25% by mid-2023. That is also true in other times of gold’s rising price during times of rising interest rates in history, like 1979-80 and 2003 to 2007.

The Journal article begrudgingly admits “gold has notched a 20% gain since the end of 2021. That is even as the Fed’s inflation fight catapulted real yields to about 1.8% from around negative 1% since the end of 2021, prompting a sell-off of exchange-traded funds in the U.S.” The article then showed a chart of negative gold ETF flows (net sales) stretching into the first two months of 2024, while reminding readers that central banks, “snapped up more than four times the amount of gold that was ditched by ETF investors in the U.S.” That was a very important takeaway!

Besides central bank buying reaching record highs, private foreign buying surged, also offsetting gold ETF sales. Demand for gold in China was “insatiable” due to “fear buying,” said a leading metals strategist, mostly due to China’s failing real estate and stock markets. China is fighting deflation, while nearby India is fighting inflation, but gold buying is soaring in both nations.

Despite falling ETF sales by traders, major U.S. institutions have raised their gold target prices – after gold crossed $2,000.  Citigroup, J.P. Morgan and TD Securities each have $2,300 price targets for gold this year.  As you know, financial guru, Steve Forbes and I agreed during our discussion in October that gold would rise to $2,400 or $2,500 this year, and “even higher if the wrong guys win the election.”

As history tells us, when gold hits new highs, we see more advertising for gold bullion coins, drawing in more retail customers. Following that influx, within 12-18 months, typically one in six of those customers graduate to numismatic coin purchases, so rising gold prices are usually a bonanza for our, and other dealers’, businesses. This, in turn, creates more demand and often higher prices for rare gold coins. If you haven’t spoken to one of our professional account representatives, you need to give them a call now to get in on this latest upward gold trend.

Inflation is “Hotter Than Expected” (Again) and Biden “Busts the Budget” (Again)

Inflation has risen sharply in the first two months of 2024. Last week, the Consumer Price Index (CPI) came in at +0.4% (a 5% annual rate) in February and +3.2% in the past 12 months. The core CPI, excluding food and energy, rose 0.4% in February and 3.8% in the past 12 months. Energy prices rose 2.3% in February, with gasoline prices rising 3.6% in Biden’s election year.

Two days later, a worse report came out: The Producer Price Index (PPI) rose by 0.6% (a 7%+ annual rate) in February. The core PPI rose 0.4% in February and +2.8% in the past 12 months. Wholesale energy prices rose 4.4%, but the biggest shock was wholesale goods prices rose 1.2% in February after declining for each of the previous four months, so Mr. Biden is in trouble.

Speaking of President Joe Biden, he submitted his Fiscal 2025 budget to Congress, which is a bloated laundry list of all the new spending programs he previewed in his recent State of the Union Speech.  He called for spending $7.3 trillion and “reducing the deficit” from $1.86 trillion in 2024 to just” $1.78 trillion in 2025 but that’s based on assumed higher revenue from raising taxes on “the rich” and corporations, a form of math that has not worked well in history.

The Wall Street Journal began its editorial analysis by saying, “Most U.S. presidential budgets are exercises in fiscal deception, but even by that standard President Biden’s Monday proposal for fiscal year 2025 sets a record for unreality. It proposes defense spending as if the world is at peace, entitlement spending that isn’t sustainable, and tax increases that would hurt the economy if they passed, which they won’t.” Unfortunately, most of this deficit spending is unavoidable, a relic of FDR’s (Franklin Delano Roosevelt) and LBJ’s (Lyndon Baines Johnson) entitlement programs, but even then, Mr. Biden has outdone himself.

As we all prepare our taxes for 2023, we should all know that the richest 1% of taxpayers pay 46% of all income taxes, which just might be within the realm of their “fair share,” while the bottom 95% of taxpayers pay only 34% of income taxes. We should also face the fact that during the first five months of Fiscal 2024 (starting October 1, 2023), the federal government has run up $903 billion in red ink, a $2 trillion annual rate. That means our taxes can’t keep up with spending.

Those are the facts, Mr. Biden. You haven’t “cut any deficits” during your big spending years. 

Gold Will Rise, Again

Gold rose $10 on the morning of Monday, March 18, from $2,150 to $2,160, after setting an all-time high of $2,182 the previous Monday.  Silver shot up from $25.20 to $25.50 in morning trading before correcting. However, silver has been the more dramatic performer so far in March in the COMEX futures market, rising from $22.67 on February 29 to $25.25 on March 18 (+11.4%). In the same time span, gold has risen from $2,045.70 to $2,163.80 (+5.8%).

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