Tag: gold

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Early Innings for Gold and Silver?

Since January 1, the price of gold through October 1 has risen by 47.6% and the price of silver has risen by 63.7%.  Are we in the early stages of a bull market for precious metals?

The primary reasons for continued price appreciation are 1) ongoing purchases of gold by central banks; 2) individual investors are now taking an interest in precious metals; and 3) physical supply deficits.  Major investment firms are now getting on board the gold train.

On June 10, JP Morgan Research published a bullish opinion on gold.  They wrote, “After three consecutive years of more than 1,000 (metric) tonnes of CB (central bank) gold purchases, the structural trend of higher CB buying has further to run in 2025 and 2026.”  They cited policy uncertainty, stagflation or recession, lower interest rates, geopolitical risks, and diversification away from US dollar reserve holdings by central banks as reasons to include gold in investment portfolios as “one of the most optimal hedges.”

On September 16, the Chief Investment Officer of Morgan Stanley, Mike Wilson, recommended that investors shift from a traditional 60/40 allocation of equities/fixed income to a 60/20/20 allocation of equities/fixed income/gold.  As US Treasury securities are losing some of their safe-haven status, Wilson wrote: “Gold is now the anti-fragile asset to own, rather than Treasuries.”

On September 17, Jeff Gundlach, Founder and CEO of DoubleLine Capital, recommended in a webcast that investors allocate 25% to gold.  Gundlach has made positive comments about gold in the past, so this was not a surprise.  DoubleLine Capital manages fixed income and has no precious metals investment products at this time, so Gundlach’s recommendation is unusual because it cannot benefit his firm.  Gundlach commented: “So I’m still hanging in there owning gold until such time as we get a totally different regime as regards the deficit situation and the kind of international flow situation, which is now kind of not benefiting the United States.  And I think that’s going to be a trend for the next few years.”

On a global basis, the current valuations of equities (common and preferred stocks), fixed income (sovereign, corporate, municipal, and asset-backed securities), real estate, and precious metals are approximately as follows:

      • Equities                                          $124 trillion
      • Fixed Income                              $140 trillion
      • Real Estate-Commercial       $  58 trillion
      • Real Estate-Residential         $287 trillion
      • Gold                                                 $  27 trillion
      • Silver                                               $  0.2 trillion

While neither Wilson nor Gundlach included real estate in their allocation, they represent significant portions of net worth for many families.  To get close to the target allocation levels that they talk about for gold, the price of gold would have to rise substantially, or the price of other financial assets would have to decline substantially, or it could be a combination of both.  Despite the logic supporting precious metals, few investment advisors are including them in their model portfolio allocations.  Thus, I expect gold and silver to continue their upward trends as more individual investors start to participate in the rally.

If you have any questions or comments, please contact me.

Robert G. Kahl
CFA, CPA, MBA

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The Fed’s Dilemma

Inflation expectations have subsided during the last two years.  In July 2024, the US consumer price index was 2.9% compared to the prior year.  According to the Federal Reserve Bank of New York’s Survey of Consumer Expectations READ MORE

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Don’t Underestimate BRICS+

For more than 20 years, international organizations have been evolving that serve as an alternative to the US-led organizations such as G-7, G-20, and the World Bank.  The Shanghai Cooperation Organization was first created in 2001 as a security and defense organization.  It includes Russia, China, India and five other countries.  In addition, many other countries participate as “dialogue partners,” observers or guests.

The BRICS nations (Brazil, Russia, India, China, South Africa) represent a group of nations with the same core group that seek intergovernmental cooperation.  BRICS is headquartered in Shanghai and its five core countries have a combined population of 3.21 billion people with a total GDP on a purchasing power parity (PPP) basis of US$ 56.65 trillion or 32.5% of global GDP-PPP.  It is responsible for the creation of the New Development Bank, which is an alternative to the World Bank and funded with $100 billion of initial capital.

Since the war started in Ukraine, a US-backed global task force claims that $300 billion of assets owned by Russia’s central bank and $30 billion of assets owned by sanctioned Russians have been frozen.  The actions by the US government and its allies did not go unnoticed by other countries.  Since then, more international transactions have been paid for with national currencies and central banks have been diversifying their reserve assets.  There are now 41 other countries that are interested in joining BRICS, so the core countries plus the 41 potential new members are often referred to as BRICS+.

BRICS+ will have their annual summit in Johannesburg, South Africa on August 22-24 this year.  While there has not been an official announcement yet, there have been recent posts by Russia and Iran regarding a new gold-backed currency for international trade.  On July 5, RT News, the English language news agency sponsored by the Russian Government, announced that the BRICS group of countries is set to introduce a new currency backed by gold.  Some other headlines posted on RT.com during the last three weeks include:

    • July 16 – Italian businesses want to switch to rubles in Russia trade
    • July 15 – Taking the dollar down a peg
    • July 12 – Russia seeks to expand de-dollarization drive
    • July 10 – China and Russia should lead “global governance reform” – Xi
    • July 6 – Russia proposes alternative to EU clearing houses
    • June 30 – Central American country (Nicaragua) wants to ditch dollar in Russia trade
    • June 30 – BRICS diplomat comments on what is drawing countries to the bloc

Since 2010, central banks around the world have been net purchasers of gold, after being net sellers for the years 1989-2009.  The pace of central bank gold acquisitions has accelerated in 2023 in anticipation of a new gold-backed currency.

The remainder of the year promises to be an interesting time for the international monetary system and precious metals.  If you have any questions or comments, please contact me.

Sincerely,
Robert G. Kahl
CFA, CPA, MBA

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The Fed’s Boomerang

After many years of ultra-low interest rates, the Federal Reserve decided to raise interest rates and close the gap between the inflation rate.  The consequences are now reverberating through the financial system.  READ MORE