Despite Volatility, Gold Price Headed A Lot Higher As Oil Soars

Despite volatility, the price of gold is headed a lot higher as oil soars.

Oil Soars As Supply Worries Hit
September 10 (King World News) – Ole Hansen, Head of Commodity Strategy at SaxoBank:  From OPEC’s Monthly Oil Market Report via Bloomberg: 

Saudi Arabia reported to OPEC that its crude oil production plunged again last month, hitting the lowest since 1990 as renewed hostilities between the US and Iran squeezed the kingdom’s export routes.

Riyadh notified OPEC’s secretariat that its output tumbled by 1.9 million barrels a day to 6.238 million a day, according to a monthly report from the organization obtained by Bloomberg. That’s an even lower level than the previous wartime nadir reached in April, which was the lowest figure reported by the kingdom since the beginning of the Gulf War.

Central Banks Buying Gold
Jeroen Blokland:  Central banks buying gold to diversify away from fiat reserves.

Central banks moving gold to better prepare for systemic crises.

Governments ‘helping’ other governments avoid selling government debt.

Governments working the yield curve to influence interest rates.

Governments running into trouble because of debt, deficits, and soaring interest expenses.

Declining trust in governments and central banks.

Inflation running above target for five years and above many interest rates.

A structural rise in geopolitical tensions.

The days when the price of gold was mainly about the opportunity cost of holding it relative to real interest rates are long gone.

This chart from the FT, showing how the relationship between gold and interest rates has broken down, is an excellent illustration of that.

I wonder how long the “But gold does not generate cash flows” narrative will survive.

And, perhaps more importantly, how asset managers, wealth managers, financial advisors, and the like will explain to their clients why they kept sticking to such an outdated view while the world around them was clearly changing…

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Despite Volatility, Gold Price Headed A Lot Higher
Jeroen Blokland:  Many charts are circulating on social media these days suggesting that gold has overtaken U.S. Treasuries as the largest asset in central bank reserves.

While that is certainly noteworthy, I think there is a far more insightful comparison.

Even after gold’s stellar run, the total value of all the gold in the world represents just over a quarter of all the money on earth.

Think about that.

Gold, the ultimate store of value central banks rely on to anchor trust in the financial system, covers just 28% of global money supply.

And debt? The other side of money in a debt-driven financial system.

The entire market value of gold equals a lousy 9% of all the debt outstanding worldwide.

Meanwhile, debt issuance and money printing to finance that debt continue to grow at warp speed.

If the global money supply keeps growing by 7% annually (the pace since the Great Financial Crisis) over the next 3 years, gold would need to rise another 22% just to maintain the same gold-to-money ratio.

And if gold’s share of global money were to rise to 50%, still below historical levels, the price of gold would have to more than double.

Add to that the fact that gold is virtually absent from nearly all investment portfolios, and the conclusion is clear: 

Gold is small! But its potential is huge.

Last Time This Happened The Price Of Gold Doubled
To listen to Alasdair Macleod discuss the latest on what to expect from the gold, silver, oil, bond and currency markets CLICK HERE OR ON THE IMAGE BELOW.

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