Gold Soaring To Record Highs At $2,720 Is A Warning Shot -

Gold Soaring To Record Highs At $2,720 Is A Warning Shot

Oct 21, 2024Jeremy ParkinsonFinance0

The gold price is up 32% year to date in 2024, from under $2,000 in February to record highs around $2,720 currently. That is a $700 increase per ounce of gold. If we go back a bit further to the November 2022 low around $1,6o0, the price is up over $1,100 or roughly 70%! This is great news for gold investors, who had seen lackluster gains over most of the past decade. The gold price peaked around $1,900 in 2011 and was trading around that same price for much of 2023, 12 years later. So the gold price did nothing for 12 years and then has shot 70% higher in just the past two years. I believe this bull run is just getting started and is likely to last a few more years at a minimum.As disheartening as that 12-year span was for gold investors seeing no returns, it was even worse for those invested in gold mining stocks. The VanEck Gold Miners ETF (GDX) declined by over 50% during that period when gold was stagnant and still has not returned to 2011 levels even with the recent 70% move higher in the gold price. Despite the GDX having roughly doubled from the lows two years ago, it still needs to climb another 50% just to return to the highs from 2011. Rising costs for mining companies has been a key driver of why mining stocks have underperformed. But in the past two years, the cost of gold has risen much faster than the mining costs that are inputs to producing gold. As you can see. production costs measured via AISC (all in sustaining costs) are only up around 12% in the past few years.Yet, GDX has only slightly outperformed, up 80% vs 70% for gold in the past two years. Part of this is likely due to the fact that the recent rise in the gold price has yet to be fully factored into mining company financials. This suggests that we should start to see greater outperformance or leverage to the gold price from mining stocks over the next several quarters. Given this view, at Nicoya Research we advocate for a mix of both gold and gold mining stocks in any portfolio. And we focus considerable time and resources on identifying the best up and coming mining companies that are not being fully valued and appreciated by investors.While it is exciting and rewarding to finally realize gains on investments that you’ve held for a long time, I think a fair amount of caution here is warranted. This explosive move higher in the gold price is telling us something, a sort of warning shot about what could be a difficult time ahead. There are 3 key things to watch out for that will require quickly adjusting your investment strategy.

Accelerating National Debt – $500 billion was added to the national debt in just the last 3 weeks to $35.8 TRILLION. That is half a trillion dollars or the equivalent of giving one million dollars to 500,000 people added in under a month. Each American will pay $3,593 in interest payments this year on the national debt!

Potential Market Crash – Equity markets are overbought and overvalued on a variety of metrics. Some believe the 50 bps rate cut and massive money creation in the past few months is political in nature. Regardless, markets could be in for a post election crash and I believe additional rate cuts will only provide very short term relief.

Unrealized Losses at Banks – Fully one-third of the reserves of our biggest banks are deeply “underwater.” That’s because they bought $2 trillion worth of long-term bonds (and mortgages) at interest rates around 1%. We are currently witnessing the largest October outflow from banks since the Great Financial Crisis. Mark those bonds accurately and count them against capital ratios and the entire market will collapse. Bank of America alone is reported to be hiding about $100 billion in losses on its balance sheet,

Rising Geopolitical Tensions – Part of gold’s rise is certainly due to increased geopolitical tensions globally. The United States is engaged in a proxy war against the largest nuclear power in the world, Russia. Meanwhile, tensions in the Middle East have reached a fevered pitch with Israel at war with multiple nations and likely to drag the U.S. into the conflicts as they prepare to attack Iran. Gold is resurfacing as a safe haven in times of growing geopolitical tensions and war.

So, while I am happy to see my investments rising in value and outpacing inflation by a wide margin, I do think the United States and the world are entering dangerous times. Gold is a harbinger of bad news on the horizon. Buckle up for a contentious U.S. Presidential election, Ukraine trying to get nuclear weapons and forcing Russia to intensify attacks, Israel and Iran entering a much larger war, an eventual dollar crash driven by global de-dollarization and irresponsible government spending, an overdue stock market correction or some combination of these things. I wish I had better news, but I nonetheless pray for peace, for cooler heads to prevail, and for a de-escalation of tensions. The dollar/market crash will be painful, but could usher in a more sustainable monetary system and brighter future.But in the meantime, I think there is a reckoning upon us and I suspect this rise in the price of gold is just getting started. I think $5,000 gold is in play over the next few years and could happen much sooner than most expect. While we can’t control many of the things mentioned above, we can at least take steps to preserve our capital and thrive during this reboot.More By This Author:12 Stocks To Profit From The Boom In Data Centers And Artificial Intelligence
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