The Rising Gold Price is Telling Us Something… and It Is Not Good News
The Rising Gold Price is Telling Us Something… and It Is Not Good News
The new U.S. administration came into office with a penchant for taxing imports. The taxes, called tariffs, cause goods from other countries to be more expensive. Ideally, this fights “dumping.” That’s when other countries dramatically undercut the cost of a good to damage U.S. production of that same good.
However, the current tariffs are not aimed at dumping. Rather, they are an existential threat to get other governments to do what the new administration wants. Countries, like Mexico, Columbia, and Canada, came to an agreement with the U.S. China did not.
And we are now in a trade war. Rather than compromise, China retaliated. It prohibited the export of some critical minerals to the U.S. They include:
Readers of our New Energy Publication should recognize Antimony. This is a critical metal used in many roles including solar power, glass, electronics, battery technology. But its most notable for its roles in military applications like night vision, explosives, optics, and armor piercing bullets.
The U.S., European Union, Japan, Russia, Australia, and China all list antimony as a critical mineral. China has the world’s largest deposit – about 32% of the global antimony resources and it produces 48% of the world’s supply.
And if we look at the chart below, we see that most of the moves in the gold price occurred after 2022. That’s an impressive move for something as stodgy as physical gold price. As you can see below, the price of the yellow metal sits at just over $2,900 per ounce!
What we need to know is that someone is buying a lot of gold. To move the price at this scale, that someone is going to be large – like governments. We don’t have good data on who buys gold. But rumors pointed to China buying massive quantities of gold for a while now. But its more than just China.
There are a few things that will drive big buyers into gold. Today, we have a potent combination of three drivers: falling interest rates, rising inflation, and global uncertainty.
When interest rates are high, the big money goes into bonds. When interest rates fall, money moves out to seek higher returns elsewhere. However, inflation reduces the value of currencies (that’s why it takes more dollars to buy eggs!). That’s when “inflation proof” assets become important.
Assets like precious metals, collectibles, and real estate resist inflation because they have intangible value. To preserve the value of investments, the big money moves to commodities like gold.
The last driver for gold buying is global unrest. When you have massive changes to the global economy, like we do today, big money moves to preserve capital in precious metals like gold. If we go back to Dot Com bust and the global financial crisis, you can see the same trend:
The price of gold went up nearly 600% from 2001 to 2011. That appears to be what’s happening today. There are fears of global currencies, inflation, and geopolitics. That’s a warning worth heeding.
Physical gold is catastrophe insurance and big money is buying.
For the good,
The Mangrove Investor Team
Numbers You Need to Know
11.2 Million
If all of the existing gold in the world was pulled into a 5 micron thick wire, it could wrap around the world 11.2 million times. (World Gold Council)
1974
1999
There Have Been no Major Gold-Backed Currencies Since 1999 whenthe Swiss joined the International Monetary Fund. (The Royal Mint)
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Modern Marvels: How Gold Became the Most Precious Metal
The quest for the yellow metal took men across oceans, into the depths of the Alaskan winter, and miles beneath South African earth.
