Keith Weiner, PhD, is calling for gold to reach about $2,100 an ounce, up from its present price of around $1,800 per ounce by the end of 2022. Weiner is more bullish on silver prices, saying it could hit $40, roughly double from where it is today, if certain conditions are met this year.
Weiner is president of the non-profit Gold Standard Institute USA and founder and CEO of Monetary Metals, a precious-metals-based investment firm in Scottsdale, AZ. The findings are available in Monetary Metals’ Gold Outlook 2022 report.
“Gold market commentary is often dominated by a lot of noisy perma-bull commentary,” said Weiner.
Since 2012, Monetary Metals has accurately predicted 75% of future price moves in gold and silver, and the gold-to-silver ratio, over a one-to-two-year period. The proprietary model issued a “buy” signal in 2020, and the price of gold notched a new all-time high, climbing over $2,000 per ounce later that year.
Weiner cites the following reasons for a gold-price spike:
- A growing percentage of corporations are considered zombies, a Bank of International Settlements term for companies overly dependent on outside financing in order to continue. Zombies are defined by interest expenses dominating profit. The Federal Reserve has effectively subsidized zombies for years with its zero interest rate policy, which Weiner notes is sometimes called ZIRP, keeping short-term interest rates at or near 0% to encourage economic activity.
- Zombie debt is especially vulnerable to any interest-rate rise. In the face of this growing default risk, investors will demand assets with low to zero counterparty risk, i.e. gold.
- The Fed will not be able to raise interest rates by much, or for very long, without triggering widespread bankruptcies and liquidations, including potentially exacerbating the supply chain issues already causing inflationary pressure.
- If there’s a general crash in asset prices caused by higher rates, we would expect gold to crash less and recover more quickly than other assets, even more pronounced than in 2008.
- We expect the Fed to do an about-face and loosen credit again, thus spurring demand for gold and silver.
The report notes it would be “insane” to hike interest rates in this environment, arguing that higher interest rates cause higher prices by increasing the cost of production.
If the Fed tries, it will not be able to push rates up very far, nor hold them there for very long, according to the report. If the Fed reacts to this crisis, to tamp down any credit stress among zombies and everywhere else and gets even meme stocks to go back to their old ways of rising against all reason, then the silver price could jump much more than gold’s, possibly 60% more. The silver fundamental price is now lower than last August. Compared to gold, silver is behaving more like the riskier asset.
At its core, the Monetary Metals model analyzes changes in spreads between futures and spot markets. Such changes indicate either relative abundance or scarcity in gold and silver, and the historical trends of each. Periods of abundance typically precede downward movement in the price, while periods of scarcity often presage the opposite. The model does have limitations. It’s more accurate in the short term. Longer-term predictions require analysis of other macroeconomic factors.
Other factors contributing towards a rise in inflation and subsequently gold prices include trade wars or, more broadly, economic nationalism. It is not simply tariffs, it is also the response of every corporate supply-chain management department, to buy less offshore, especially certain jurisdictions and shift to buying more from preferred jurisdictions.
The high-tech sector, and likely many others, is reevaluating its dependency on Chinese suppliers and looking elsewhere. Changing supply chains will take time. This not only causes higher prices, but there can be shortages while the new vendors ramp up.
China, by the way, seems to be responding by stockpiling certain commodities.
Similarly, green energy restrictions, fueled by bans on production methods such as fracking and power-generation methods such as oil, coal, and nuclear, are keeping prices high. Europe and the UK are increasingly dependent on natural gas.
If all energy users are increasingly herded into natural gas, this can cause skyrocketing prices. Not only of natural gas specifically and energy generally, but everything that depends on energy -- like fertilizer and the things that depend on fertilizer, like food. Europe is struggling to heat homes this winter. It may struggle to feed people next winter.
Lockdown whiplash is the last nonmonetary force for higher prices. The initial response to Covid was a globally synchronized lockdown, which destroyed demand for certain goods. Makers of those goods were forced to reduce capacities or permanently shut their doors. Lockdown also altered consumption patterns.
Producers cannot increase the quantity of goods, in response to higher prices or even higher profit margins. And profit margins are not necessarily increasing, as input costs are also rising.
Monetary Metals’ Gold Outlook 2022 report can be downloaded for free at: www.Monetary-Metals.com.
Keith Weiner PhD is founder and CEO of Monetary Metals (www.monetary-metals.com). He is an authority in the areas of gold, money and credit and has made important contributions to the development of trading techniques founded upon the analysis of bid-ask spreads. Weiner speaks and writes on economics, markets and money.
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