Markets are looking for the Federal Reserve to wrap up its tightening cycle as inflation decelerates. But not all agree with this premise. Goehring & Rozencwajg sees inflation as a decade-long problem that will trigger new record-high prices in gold.
Gold will play a massive catch-up game to the commodity complex this year as prices rise above $2,050 an ounce, Goehring & Rozencwajg managing partner Leigh Goehring told Kitco News. "Gold is going to hit record highs this year. In August of 2020, we peaked at $2,050, and then again in March 2022. This year we're going to break through the all-time high," Goehring said. "It's time for people to want to be bullish on gold. Since 2020, the average oil indices are up 200%, and the GDX at one point was down almost 35% from its 2020 peak."
And once people realize that inflation will not come down to the Fed's 2% target as expected, they will turn to gold. "Right now, when inflation increases, the Fed raises rates, and people sell gold. And I think the psychology is going to switch to inflation going up, the Fed not raising rates or lagging behind, and inflation becoming a real problem," Goehring said.
The 1970s is an excellent example of something like this already happening with the Fed, inflation and gold. "This is a replay of the 1970s with some changes. After the Fed started to aggressively raise rates starting in 1973, gold prices corrected by 45%. When the Fed finally gave up a few years later, inflation on a year-over-year basis was still at 5%," Goehring noted. "The same thing is happening now. Month-on-month inflation has come down, but year-over-year is still very strong."
The most important thing for the market is to realize that the Fed's rate hikes are ending. "That will be a huge psychological boost to get the gold price through $2,000 and the old $2,050 high," Goehring said.
The second thing is for the markets to realize that inflation is not done. "Back to the 1970s, when people saw that inflation was still a big problem, that's when the gold price began to go crazy after bottoming at the end of 1976," Goehring & Rozencwajg managing partner added. "That's why this next move is going to be so exciting. There's no overhead resistance. I don't know how high gold can go. I wouldn't be surprised to see a $3,000 price this year. That sounds really outrageous."
One driver that will push inflation expectations higher is China reopening. The big shock of 2023 will be China seeing a massive rebound, putting a lot of pressure on commodities and adding to the inflationary pressures, Goehring pointed out. "I'm going to be completely contrarian and say that we're going to see significant economic growth on a global basis in 2023 and no recession," he said.
Other positive drivers for gold this year include the Western ETF investor returning and central banks continuing to add the precious metal to their reserves. "One of the big underlying fundamental changes taking place this year is gold-backed ETFs beginning a new accumulation phase," Goehring stated. "It also shocked everyone how strong the central bank gold buying is. That is going to continue."
Source: Kitco News