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By Austin DeNoce, Benzinga
After years of relatively range-bound trading till 2023, gold is finally making moves that may hint at a bull market on the horizon. Price targets are inherently speculative, but in historical bull markets, the U.S. Treasury's gold value exceeded the monetary base by 1.5 times, suggesting a price of $32,000 per ounce considering today's $5.6 trillion Fed balance. Even adjusting for $3.2 trillion in excess reserves, a conservative estimate places gold at $14,000 per ounce to match historical ratios. These figures, while astonishing, align with past trends during periods of deflation and inflation, and given the current economic climate, it's not impossible that gold could reach these unprecedented levels again as investors seek protection from increasing financial instability during an election year.
Historical Context
Gold's journey from uncertainty to breakthrough in recent weeks has been particularly noteworthy. After a surge in 2020 partly driven by a massive increase in global liquidity during the pandemic, gold consolidated in a range for several years, but it finally made a decisive move beyond the $2,000 to $2,100 resistance zone on Mar. 4. This event wasn't just another peak; it confirmed gold's sustained uptrend that began in the early 2000s, showcasing its resilience and potential for further gains as a possible bull run similar to the 70s and early 2000s gathers steam.
Gold has long held a valuable role as a hedge against the debasement of fiat currencies and the expanding global money supply, a pressing issue since the departure from the gold standard in 1971. However, this threat of debasement has grown even stronger recently with the rapid increase in the national debt and accompanying rise in interest obligations, which the Congressional Budget Office projects to be $870 billion in 2024 and $950 billion in 2025. This backdrop suggests a potential renaissance for gold, with the metal not just breaking past old barriers but potentially setting the stage for unprecedented growth in direct response to the ongoing debasement.
Recent Market Trends and Central Bank Activity
Despite a continued outflow from global gold ETFs for the ninth consecutive month leading to a $2.9 billion reduction in assets and a 49-ton decrease in holdings gold prices have shown resilience. This price stability can largely be attributed to significant purchases by central banks offsetting the impact of these ETF outflows. In February, North America experienced the most substantial outflows, reflecting investor anticipation of higher-for-longer rates due to the stronger-than-expected labor market and stickier inflation rates, which contributed to a stronger dollar and the reduced ETF holdings.
However, Asia, led by China, recorded inflows for the twelfth consecutive month. Meanwhile, central banks globally added 39 tons to their reserves in January alone, with Turkey and China at the forefront of these acquisitions. This enduring demand from central banks, underscored by a year of strong gold buying in 2023, signals their continued support for gold as a valuable reserve asset and growing concern around fiat debasement.
The Western Wake-Up Call
While central banks and the Eastern world continue to buy gold, the Western world and retail more broadly seem to be lagging behind. However, the awakening of Western investors to the gold market could herald a significant boost to gold and gold-related stocks in the months to come. Even with gold prices at all-time highs, the ETF flows suggest retail has yet to join the market, implying a lot of potential momentum still to come.
Ultimately, this is setting the stage for considerable potential gains in the gold sector, particularly for gold explorers like Austin Gold (AMEX: AUST) thanks to their potential to deliver superior returns compared to direct gold and silver investments. Austin Gold also recently completed its inaugural diamond drilling campaign at the Stockade Mountain Project, with three exploration holes drilled over the winter season highlighting the potential of its assets.
All that being said, its impossible to predict if or when sentiment will shift with complete accuracy, but if history repeats and gold's historical relationship to the monetary base holds true, $14,000 per ounce isnt out of the question.
Featured photo by Jingming Pan on Unsplash.
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