The chart below from goldprice.org shows that todays closing spot price was an ATH closing price (previous ATH closing price was $2,070).
The previous highs around this level were due to the pandemic in 2020, Ukraine war in early 2022 and earlier this year due to a falling US$ on anticipated reduction in US interest rates later in 2023/early 2024 which were overtaken by a view interest rates would rise more in 2023 deferring a reduction in rates to late 2024 and hence US$ went up again during 2023 and PIG retreated.
There has been a reduction in the US$ index recently pushing up the price of precious metals as the market expects no more rate increases by the Fed and possible falls later next year. There are a number of other tailwinds for gold:
- inflation has fallen a lot in all countries and there are clear signs of slowing in economies brining with it a possible reduction in interest rates (longer term bond prices reflect this)
- Central bank buying of gold at all time highs
- China and some other countries reducing their holdings of US dollars treasuries
- moves by a number of countries (especially China and Russia) to trade in non- US$
- concerns about the massive US budget deficit and massive debt which is increasing with interest on US debt surging as low interest debt converts to higher rates plus more debt is issued. Adding to this concern is the political unwillingness to do anything about the the US budget deficit problem and the politics within the GOP.
- heightened geopolitical risks
Precious metals currently have a number of strong tailwinds and we may see a spike in gold and silver prices as short positions are covered. If the net short positions turn into net long positions this will be another tailwind.
Now add the following:
- the profits of producers in creases by around 3 times the increase in POG - eg if POG goes up 10% producers profits increase by 30%
- gold producers valuations are at historical lows and more so for small/medium sized producers.
How much could the POG increase? The US$ index reached a high of about 114 in early November 22 with POG at $1,630 and now US$ index is 103 with POG at $2,070 an increase of almost $450 or less ver 25%. The US $ index is still very high and if we were to see the index fall to 95 or low it is feasible for POG to rise another few hundred $ in 2024.
Adding all the above up it is possibly we could see outsized returns from gold stocks in the next 12 months especially small/medium sized producers and soon to be developers like RED followed later by explorers
What could stop this happening - more rate increases and increase in bond yields.
Lithium stocks are yesterdays story which is why I have sold almost all my lithium stocks (I had huge success with AZS and made a massive profit) and have been buying lots of gold stocks with some silver as well. Other commodities should do okay as well but not as good as precious metals
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