Gold, yields, tariffs, (economic) war, what's next?
GoldWatch has made one of the most courageous claim at the beginning of the year, and that was predicting an ambitious price increase at least 3300 USD/ounce by the end of 2025. All the decent market and investment experts forecasted much less gains for gold (Goldman Sachs forecast in February). The big investment giants have a convenient position to make conservative estimates, and if they can see a major change what makes their projections obsolete, they just modify that by time. Even several times in a year. 2024. was a year like that, and so 2025. will be.
GoldWatch's outlook for the year ending that gold price will hit the 3300 USD per ounce at least (The GoldWatch article here in Hungarian), hence we were wrong as well, underestimating the potential of the precious metal.
What is happening, and why everyone is seeming to be miscalculating with the price movements? We are trying to answer that, and also looking for the answer to the "What happens next?" question, which is always the most difficult thing. But before we do that, let's note and acknowledge the fact, that these big fishes, like Goldman and UBS are predicting now 3500/3700 USD per ounce by the end of the year for gold (it happened in early of April, and now, one week away from May gold has nearly touched 3500 already...), but this time the sum of 4500 USD/ounce was mentioned showing that if not everything, but a lot of things could happen in 2025. what was unimaginable before. (Reviewed forecasts for gold in April)
Matthew Piepenburg (VonGreyerz gold Switzerland) has been talking about the real catalyst behind the gold price surge, what is the liquidity crisis, and the US government debt problem. A discussion on the Gold Telegraph released recently with Alex Deluce is available on this link, where he explains that the currencies are being continuously debased, and this liquidity/debt crisis will force the governments including the White House (or FED let's say) to use one more time the quantitative easing, what is pouring paper money into the system, raise the FED's balance sheet again.
What will it cause if that happens? How can they do that after the FED has been trying so hard to push back inflation and tighten the money supply protecting the value of the US dollar? How it could be done without losing credibility? Or do they even care about now the credibility, when the crisis is looming and desperate measures will have to be used?
For imagining the most likely scenario, let us step back a little bit, and summarise the situation we are facing now. As Mr Piepenburg explained, now the world is in a beginning of an era where US treasury is no longer trusted, at least not that much it used to be. The reason of that is the irrational public debt of the US, and the weaponization of the US dollar. US sanctions policy, and lately the tariffs are just some extra fuel on the fire. The slow de-dollarization, where more and more countries are trying to move away from the petrodollar and convert their commercial transactions into other assets (e.g. national currencies) is inevitable and it is very unlikely to stop, moreover, it might accelerate.
Piepenburg foresees that USA will have to play again the bazooka-money card. The authors of the GoldWatch agree with that, but there is a risk that this action will not be working that well it used to do. The East, or the global south (or we can say the BRICS) is more vary about how the petrodollar could transfer the inflation from the US to the rest of the world. How is that? We wrote about this here on the GoldWatch. The inflation generated by the US was absorbed by the whole world economy, because everyone had to buy dollar for all payments. So after 2008, QE 1 2 and 3 worked so well, the new money supply was backed up by the economical power of the rest of the world so it did not have bad influence on the US economy, even the contrary happened. But this so called "drug" money led to a survival of a bad and faulty economic system, creating even a bigger bubble what we have seen bursting in 2008-2012.
However, the US dollar is still in charge, but petrodollar's rule is fading: from all global oil trade transactions, 80 per cent of the payments were made in US dollar in 2023 says the oilprice.com. Non-western countries like China are dumping their US treasury assets and bonds, stockpiling gold instead.
Source: ceicdata.com
Where are all of these heading towards?
Long story short: more tariffs, isolation, embargo and then most likely: war. We have seen a very similar pattern just before the breakout of the 2nd World War, when US sanctioned Japan for example.
The West is already trying to put the genie back into the bottle, but the global South - including China - is going to be too strong for that. As the "rest of the world is tired and fed up with the US hegemony, the danger of "democratisations", the repeated global economy crisis on and on, they will be keen to leave the dollar and the US led free market behind (what is not really free for them), and join to a system what will -at least- offer a measurement (definitely gold or precious metal based) what is transparent, cannot be manipulated and inflation free. Gold based currencies are on the verge of return but the transition does not look like seedless and peaceful.
This might take years or a decade, but it is unlikely to go longer than that. Despite the "tariff wars" and the economic situation generated low energy and resource (not all) prices -which suggest that everything is alright- are not going to last long. They are running out due to the fact that there are 9 billion habitants live on the planet, especially if everyone would like to have some of them - and main powers with will (not European Union) are going for them.
The race has already begun, and we can see that there are different plans and scenarios planned. We only can predict very few things forehead, but one of them is that precious metals will play a significant role in this new era.
DISCLAIMER: THE ARTICLES OF THE GOLDWATCH ARE NOT TO BE CONSIDERED AS A PART OF ANY OFFER OR INVESTMENT, THEY REPRESENT THE OPINION OF THE AUTHOR(S). ANY UNPERMITTED USAGE (EVEN IN PARTS) IS FORBIDDEN.
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