Every December, sensational headlines about the coming year appear everywhere. The market prognosticators come in droves with 'clickbait' headlines telling us what is about to happen. This year is no exemption. “Meat will be banned.” “U.K. will ‘Un-Brexit.’” “Gold will reach $3,000".
Some headlines are easy to dismiss, like governments banning meat. It seems highly unlikely that governments will ban meat in 2023. Plant-based meat popularity is growing, but in 2021, plant-based meats only represented 1.4% of meat industry sales. However, a few years from now, politicians taking money from environmental groups may seriously push to ban meat. There needs to be more production capacity, market support, and sufficient consumer adoption to think the environmentalists are anywhere close to getting meat banned.
What about gold? Many analysts are calling for higher gold prices. Is $3,000 gold in 2023 possible?
What is the scenario to push gold to $3,000?
Overwhelmingly, economists predict a global recession in 2023. CNN reported that 72% of economists expect a recession in 2023. Bloomberg reported that the latest numbers indicate high interest rates are a global economic threat. Inflation will remain high in 2023. Federal Reserve Chairman Jerome Powell continues talking hawkish about the interest rates continuing to rise until the “job is done" . The current interest rate environment is keeping the price of gold artificially low.
The scenario fueling the calls for $3,000 and $4,000 gold is the human element of economic pain. As recession grows globally, central banks may reverse or slow interest rate hikes to give some economic breathing room. Bank of America says the change weakens the Dollar, and the price of gold goes up. The scenario is possible, especially in the second and third quarters. Over the last 20 years, the average annual gold rate of return is 10.4% and was positive 80% of the time. The highest climb in the last 20 years was 31.9% in 2007. Is it reasonable to think gold will climb 60% in 2023?
Three reasons to think a massive revaluation upward is likely:
1. Central banks bought a record amount of physical gold in Q3 (link- https://www.usgoldbureau.com/news/banks-are-buying-gold). Central banks have seen crises come and go. They have countless analysts and artificial intelligence scouring data. It seems foolish to interpret their actions as panic buying. Instead, it seems more reasonable to interpret their actions as calculated, deliberate, and with a profit motive.
The simplest explanation is often the best explanation. The simplest explanation central banks are buying so much gold is to revalue their balance sheets when gold revalues upward. Gold is the only asset every central bank can't print. Gold offers banks magic-pencil accounting tricks to restructure debt based on unrealized gains. If the price of gold skyrockets, the Central bankers can completely overhaul their high-debt balance sheets overnight. Would it surprise you if I told you that central banks openly call for higher gold prices and additional accounting provisions?
The governor of the Dutch central bank said gold should revalue higher and accounting rules changed to restructure debt. Think about the price of gold. The gold price is unlimited because the price will reflect the purchasing power of the currency. Bankers can create perpetual inflation and transfer all the wealth from you to them by playing accounting games with their balance sheets. A crazy valuation on gold would reset the debt-to-asset ratios freeing central banks to print money at will again. It may sound farfetched for a massive revaluing of gold to transform a balance sheet overnight. However, have you considered 1933 , 1971, and 1999 ? Don’t underestimate the efforts private bankers will make to keep their money printing monopoly strong. History shows that when bankers need more fiat dollars, they revalue gold.
2. Central banks will fail to conquer inflation, and the market will realize it has all been a scam. When inflation rapidly increased, every administration official with a microphone said it was "transitory.” Those same people say it should reduce by the end of 2023. At each FOMC meeting, the SEP (Summary of Economic Projections, the data presented by the Fed) revealed that the terminal interest rate for 2022 would be higher than previously expected.
Despite the aggressive interest rate hikes, Federal Reserve Chairman, Jerome Powell, admits core inflation is essentially the same as in December 2021 .
In other words, despite all the demand destruction and economic pain, the Fed still needs to move the needle. Countless people lost years of retirement savings with nothing to show for their sacrifice. The
Fed is committed to raising interest rates until the “job is done.” It will keep doing what they have been doing, even though they admit its actions haven't worked.
When fear sets in, there will be panic gold buying. Panic buying will create volatility in the price and short to mid-term supply challenges. The market will realize that raising interest rates will not solve inflation, and people will fear a massive crash. Market makers will force the spot price and premiums to climb quickly to slow down panic buying. Dealers also will want to add higher premiums to offset their inventory challenges.
3. A wartime spending mentality will grow. When Russia invaded Ukraine, it became a global economic race to the bottom. Four days after the invasion, I warned you that Russia was not trying to win in Ukraine. Instead, it was an attack against the Dollar to draw the U.S. into a long, drawn-out proxy war leading to massive amounts of debt. I said it this way,
“I do not think Putin has any intention of launching nuclear weapons. Instead, he is trying to bait the U.S. into an expensive conflict provoking the Federal Reserve to continue printing incredible amounts of dollars to aid Ukraine in war . Inevitably, energy costs will increase, creating a higher across-the-board cost of living for all Americans. Putin is engaging in adventurism in Ukraine, but do not be fooled; this war is against the American economy and the Dollar's international reserve currency supremacy. War is the fastest way to stimulate an economy and undo it. The U.S. economy is incredibly stressed right now. Another expensive war won't help. Putin is trying to knock down a few dominoes in the already strained American economy to cause a complete economic collapse.”
Russia will spend around $71 billion on defense in 2022 and around $84 billion in 2023. The total is unknown how much the U.S. has sent to Ukraine. Still, as of November, it was at least $48.0 billion. Congress passed a $1.7 trillion omnibus funding bill. 2.6% of the bill is aid for Ukraine, meaning at least another $42 billion is heading to Ukraine. The known Ukraine spending totals at least 2.5% of all federal spending in 2022. To put it in perspective, the Federal government only allocated around $37.3 billion for U.S. natural disaster relief in 2022 . Washington has spent nearly three times as much financing Ukraine as it spent repairing American homes and businesses. Yikes.
It seems clear that unchecked spending in Ukraine will continue. Inflation will continue. As mentioned in point two, the market will realize that rising interest rates will be ineffective against inflation. Why? It is impossible to mop up excess water while a hose releases water at full blast. The water will only get mopped up if you turn off the spicket. If Washington continues spending like a drunken soldier, inflation will stay. As mentioned, the central banks will need to play accounting games to keep the game going. The answer is higher gold prices and magic pencil accounting.
Will gold go to $3,000 in 2023?
I don’t have a crystal ball and am not a fan of price speculation. The price needs to increase by 64% or about 5.4% per month to see $3,000 gold in 2023. If prices started moving that quickly, countless people would jump in, accelerating the price to much higher than $3,000. If people could get 5.4% monthly, the Treasury market would fall apart, and the U.S. government would have more significant problems than inflation.
Anyone that gives a price prediction is either a liar or a charlatan. The only price prediction I am willing to commit to for 2023 is: I don't know. Even 3% per month (which would still be record growth) would put the price around $2,600. The bankers will want to prevent the growth from being noticeable. Instead, it would be many small upward movements to keep as many people inactive as possible.
Greed tends to motivate bankers, and their greed should be a warning. If there has ever been an argument for the price of gold rising, it is that the bankers who set the price are buying more than at any time in recorded history.
Here's what we know for sure. Uncertainty is high and will continue. The upward price action is excellent, but if you are like me, you don’t invest in gold to get rich. We invest in gold to stay healthy financially and have long-term protection. The price growth is the frosting on the cake, not the cake itself. Gold is a safe-haven asset that has a 5,000-year track record of preserving wealth.
If the price of gold goes to $3,000, I will still be a buyer. If the price drops to $1,500, I will buy as much as possible. Gold is about legacy and protection. If it climbs to $3,000 this year or five years from now, it will still be a great way to pass down wealth to kids and grandchildren.