Dryblower on why gold could soon crack $3000/oz (30 August 2021...

Dryblower on why gold could soon crack $3000/oz
(30 August 2021 from https://www.miningnews.net/) Interesting read....

GOLD might be on track to crack the $3000 an ounce mark if Dryblower’s reading of recent market signals is correct, but there are a few tricks in that price forecast. The most obvious is the missing US before the $ sign because the $3000/oz price tip is in Australian dollars.

Another factor needed to drive the price up is a clearer picture of US interest rates which was expected late last week but which failed to be delivered by US central bank boss, Jerome Powell in his keynote talk at an economics powwow in Wyoming.

A third element of the $3000/oz price is a black swan event of the sort which drove a leading risk analytics business to buy US$50 million worth of gold bars earlier this month.

That big gold purchase is very important because it was made by an American company, Palantir Technologies, which specialises in advising corporate and government clients on the economic, political and military risks threatening their operations.

The best-known organisation which pays millions of dollars for Palantir's services is the Central Intelligence Agency, the peak spook group of the US government.

With clients like the CIA and a stock market value of $50 billion it's reasonable to believe that Palantir knows what's its doing and that essentially involves hoovering up data from around the world to arrive at a considered assessment of risk.

Whether Palantir's smart software correctly tipped a rapid meltdown in Afghanistan is not known but the management team of the astonishingly well-connected risk assessment business is that there are too many black swans flying around the world today to be ignored.

That view, flies against Dryblower's instincts (as expressed here two months ago) and is not shared by big name investment banks such as Goldman Sachs which sees gold sliding away as interest rates rise, or by Morgan Stanley which last week said it saw gold falling to US$1670/oz by Christmas.

But there is something compelling about the upside of the gold-price debate when a high-profile risk analysis business such as Palantir buys $50 million of gold, and more specifically gold in its ingot form, not somebodies' piece of paper claiming to be backed by gold in a vault or in the ground, somewhere (just don't ask to see it).

Powell's dodging of the interest rate question, which was hidden inside a failure to spell out when the Federal Reserve might start winding back its artificial support of the US economy gave gold a mini boost late on Friday when the price kicked up to $1818/oz.

That $30/oz price rise in a matter of minutes reflected investor unease with the never-ending creation of paper (fiat) money as one of the US government's post-COVID stimulus measures.

The cash-creation game will eventually end but whether that happens before or after the inflation genie pops out of her bottle is a question which should be worrying every investor.

For Australian investors there is the additional consideration of currency risk because try as he might Dryblower can't understand how the Aussie dollar clings to an exchange rate above US70c.

Until a few weeks ago the current rate of 72.5c could be explained by the strength of the Australian economy which was floating on a sea of cash shipped in from China as a fast as iron ore carriers left WA ports.

And if you doubt there's a connection between iron ore the Australian currency, consider a bit of evidence such as the recent peak in the exchange rate (79c in early May) coinciding with a record price for high-grade iron ore of $230 a tonne.

The iron ore price slide to around $155/t has been matched by a fall in the A-dollar exchange rate as currency traders adjust their books to allow for a steeper fall should other commodity prices take a dip, or the China vs Australia trade war worsen.

The changing face of China, which is re-embracing its communist roots (the "common prosperity" campaign and crackdown on billionaires), is undoubtedly a factor in Palantir's risk calculation which led to its gold investment.

Never-ending Middle East wars. The return of Islamic State via Afghanistan (again). Russia v Ukraine and North Korea vs the US are other events tipped into Palantir's risk assessment algorithms.

Dryblower's $3000/oz gold price involves a similar (but far simpler) exercise as Palantir because if history turns against Australia, as it does from time to time, it's easy to see the exchange rate returning to 55c, where it was just 18 months ago.

If the A-dollar does retreat back to its COVID low of last March, then at today's gold price of $1818/oz the Australian price would be A$3300/oz.

There is an infinite variety of variations in the gold + currency calculation to achieve a price of $3000/oz (such as gold at US$1900 and the A-dollar at 63c).

The key point in the gold + currency guesstimates is that after the latest collapse in Afghanistan and with COVID still widespread some very skilled risk assessment professionals have turned to gold because it remains the world's ultimate financial safe haven.