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How high can Gold Go?

Gold has been on a record setting run lately.

Look at that gold up mine, tens of percent.

The games keep coming for gold.

If I check right now, gold is at a record four two hundred and two dollars an ounce.

The commodity broke forty two hundred dollars an ounce on Wednesday, the latest high in a gold rush of historic proportions.

This has been an incredible year for gold.

That's Jack Ryan, Bloomberg's Commodities and Precious Metals Reporter.

If we were to end the year now, it would be the best year since nineteen seventy nine.

It's about fifty five percent this year.

This incredible year for gold has also been an incredible year for some other shiny commodities.

Gold is actually, in one sense, the weakest performer of the platinums, up by about eighty percent, silver by about seventy five.

All of the precious medals are moving higher this year, and there's a lot of reasons behind that.

Jack says, all this interest in precious metals is a sign of our uncertain times.

Gold thing often operates as a barometer for geopolitical tension or what's happening in the global financial system, so that watching the gold price can actually be quite a useful too, to kind of take the pulse of what's happening in the world at that particular moment.

People have long rushed to buy gold when the economy seems weak or unstable, but the scale and the speed of this gold rally is different.

Just when the pace of growth looked to be slowing down last week, it started up again amid escalating US China tensions over tariffs and a signal from US Federal Reserve Chair Jerome Powell that at least one more rate cut could be coming this year.

And while some high profile voices in the financial world are sympathetic to the turn towards gold, like JP Morgan Chase CEO Jamie Diamond Future times.

In my life I said, semi rational to have some of your portfolio.

It's also raising alarm bells for some investors, like Ken Griffin, CEO of the global investment firm Citadel.

The world you see central banks around the world, as you see individual investors around the world go, you know what.

I now view gold as a safe harbor asset in a way that the dollar used to be viewed.

That's what's really concerning to me.

Jack says that the gold rush and the debate around it reflects something deeper about the way investors are thinking about the economy and the world right now.

Holding the currencies, even not even just the debt of a foreign country, is an implicit expression of trust in those countries.

And when you maybe trust them less, an asset that doesn't have any counterparty might become more appealing.

And that really, I think, if you boil it down, has been the thing that's really supported gold.

I'm Sarah Holder, and this is the Big from Bloomberg News Today on the show, what's behind gold and Silver's record smashing runs and what can history teach us about how this gold rush could end.

If there's one thing you should know about gold, it's that it thrives in a crisis.

Gold broke one thousand dollars as Bear Stearns was kind of collapsing in two thousand and eight and two thousand, a few months after the start of the pandemic.

That's Jack Ryan, who covers precious medals for.

Bloomberg three thousand earlier this year.

You could say it was the kind of trade war that was expanding.

Liberation Day was just coming up.

And so now you look at when it crossed the threshold of four thousand, what's been happening in the world.

Geopolitical tensions, trade wars, high inflation.

It's been crisis after crisis, and all the bad news has been good news for gold.

Talked to investors and people in the market, a key turning point for the gold market seems to have been when Russia's assets foreign exchange assets were frozen.

That was in twenty twenty two, at the beginning of Russia's invasion of Ukraine, and.

Those were treasuries, those were assets denominated in dollars, in pounds and yen G seven currencies, and that I think was a key moment for central banks around the world because they looked at that and they realized that if they came into conflict with the West at some point in the future, they could potentially lose access to the reserves, presumably at the time when they would actually need it the most.

Gold.

On the other hand, as long as you start within your own borders, it can't be frozen, it can't be taken from you.

And so from that point on, buying of gold by central banks roughly doubled from about five hundred tons a year before that to about one thousand tons a year now.

Jack says, the central banks that have been building up their gold reserves most aggressively have a few things in common.

China have been a really important buyer, probably the most important buyer.

India has also been adding to its reserves, and Eastern Europe as well, so Poland, Serbia, the Czech Republic.

They've all been buying quite a lot of gold.

It's countries who are not part of the post Second World War Breton Woods system, a global monetary order under pin by gold.

These are countries that didn't take part in that, but are now large economies, and they're building gold reserves that are beginning to be commensurate with the massive holes that were built up by the United States, France, Switzerland, Italy, other countries like that.

But it's not just central banks that are seeing the appeal of gold right now.

Other investors are flocking to gold as the Trump administration ratchets up pressure on the US Federal Reserve.

One important one has been some of the attacks on the independence independence of the Federal Reserve.

The efforts to fire one of the governors, Lisa Cook, that I think has been a really key kind of source of support for gold, because if you had applied to Federal Reserve, it sets up this kind of possible goldilock situation.

Lisa Cook is fighting Trump's attempt to remove her, and the Supreme Court will hear the case early next year.

In the meantime, FED Chair Jerome Powell has been firmed that the Federal Reserve retains its independence, but a weakening labor market has pushed the Fed to start cutting interest rates.

In September, it lowered them by a quarter percentage point, and this week Powell suggested another rate cut could be coming at the end of October, and that means gold could start looking a lot better for investors who might otherwise want to earn interest on their cash or on bonds.

Your cash in the bank becomes less appealing, and treasuries become ress appealing, and non yielding gold becomes more attractive.

So it's a goldilock situation for gold.

No pun intended, as you said, possibly, yeah.

Meanwhile, these factors and some others have also been driving up the price of gold's notoriously volatile cousin silver.

Often if gold moves one way, silver will move twice as far the same direction, and I mean it's done something similar to that this year.

And for silver, there's kind of diverse use cases.

I mean, gold is used either in jewelry or it's used essentially just as an investment asset, where silver has quite a sizeable chunk of annual silver supply goes into industrial applications photovoltaic solar cells.

That's a growing source of demand.

And so for the last couple of years the market has been in deficit.

There is a lot of silver in vaults around the world.

The world isn't going to imminently run out of silver, but you have that deficit situation.

And then on top of that, investors are looking at the volume of debt that's held by some Western European countries the United States, wondering about how that can be resolved, and so they're looking at the risk of currency debasement and how they can hedge against that, and they think maybe cryptocurrencies, maybe precious metals, maybe real estate, maybe these are kind of assets that we can hedge against this risk.

With all of this rush to buy gold, it's worth noting buying a commodity like gold or silver looks pretty different from buying a US Treasury bond or a share of a stock on the SMP.

There's many ways to do it, and you can kind of scale it based on maybe how paranoid you are about whether or not you'll be able to get access to your investment.

And you can buy a small bar or a coin from a bullion dealer.

There's probably a visceral appeal of just to having gold coins under your bed or something like.

That for investors who don't need to stash their doablloons under their mattress.

Jack says.

Another route is trading gold futures or buying gold back stable coins.

Other investors are buying precious metals through exchange traded funds.

The gold or silver back to ETFs give an investor a share of the commodities they hold.

That's an easy, straightforward, relatively low cost way to get exposure to gold and silver, and it's very popular.

Okay, so there's both tangible and intangible ways to invest.

I'm wondering are there examples of how this run on the metals market is creating logistical craziness in the physical world.

It's funny.

At the start of the year, investors were concerned about the possibility that gold, silver, these various other precious metals would be tariffed, and because of that, prices in the US started creeping higher as people exited their shorts, and that led to this great arbitrage situation where you could buy gold in London for cheaper and sell out in New York for more, And in order to do that you had to fly the stuff over.

So typically with gold, you'll store it in the hold of a passenger flight.

So probably if you fly in New York London, it's quite possible that underneath your seat you won't be aware of it for security reasons.

But there is gold.

As of September, President Trump has said that gold at least was not going to be subject to tariffs.

But because of the massive outflow of precious metals during that uneasy period, London is still short on silver.

Now we're seeing a big premium actually for silver in London, and some of that metal that traders went a massive effort to get to New York, they're now flying it back to London because the arbitrage now works the other way.

You can buy it for less in New York and sell it for more in London.

Wow.

So they're basically saying, turn this flight around.

We got to get the silver back to London.

Absolutely after the break.

What we can learn from the last time the value of gold spiked by historic proportions, and what bears and bulls are saying about where precious metal prices go from here.

Gold is officially more valuable than ever.

But Bloomberg Precious Metals reporter Jack Ryan says, it's not the first time a gold rush made history.

So these are good times for gold.

But the best times for gold was the nineteen seventies.

Up until then, anyone who held US dollars could in theory trade them in for gold.

But at the start of the seventies, President Richard Nixon ended the gold standard.

Dollar prices floated freely and the price of gold started to rise.

Throughout the nineteen seventies, and a lot of Western economies, particularly in the US, you had stagflation.

You had weak growth and high inflation, and gold ripped through that period, particularly as you got to the latter stage of that decade, and you at the oil crisis, really sky high inflation Vietnam.

That's a government borrowing in order to pay for that.

And throughout that period, historians and scholars will tell you that Nixon was putting pressure on the Fed.

He was putting pressure on the chair Arthur Burns to keep interest rates lower than perhaps they should have been.

And I mean, you could argue that, you know, there are some echoes of that today.

And then you had a peak in January nineteen eighty and just prior to that, President Jimmy Carter had frozen some Iranian assets at a similar moment to G seven countries freezing Russian assets.

And that there was many oil producing countries that had built up vast fortunes of dollars from selling oil at incredibly high prices throughout the nineteen seventies because of the oil crisis, realized that those dollars were vulnerable and that actually maybe they should start buying more gold and increase their allocation to gold.

And what stopped the price from climbing more?

When did things start to reverse?

Course?

People who trade it, who were trading at that time, they describe it as this, you know, remarkable day.

Gold peaked at about eight hundred dollars announce in January nineteen eighty, so eight hundred dollars in nineteen eighties money about thirty six hundred dollars.

I mean, it never returned there for the rest of the twentieth century.

It quickly tumbled in the years following that as interest rates came up and precious metals started to face into lots of different headwinds.

And so I guess maybe there is a cautionary tale in that it's skyrocketed to a peak and then lost ground and went through many years of kind of pretty mediocre to poor performance.

Well, Jack, we've talked about some of the reasons why people are flocking to gold and silver right now, but not everyone is always so bullish on gold.

I know Warren Buffett is famously critical of the asset, saying it's essentially a way to quote go long on fear gold really doesn't have utility.

I would bet I'm good producing businesses.

To outperform something that doesn't do anything.

What are the downsides of investing in gold right now or ever?

Yeh, I mean there is absolutely valid criticisms of one of the most basic and fundamental ones that is not very useful.

I guess any investor would and probably should be nervous if they're buying into a market where they look at the price chart and it's almost been a straight line upwards for two three years.

There's some sentiment in the market that you might feel, is you know, it feels a bit toppy, maybe that there's some spectative fervor.

Retail hasn't been a big part of the rally thus far, but I suspect that might be changing.

You can find images online of gold buyers queuing outside refiners.

One trader sent that to me and he said, that's a bad sign.

But it's a bit like they say, you know, if your dad calls you and said should I invest in this?

They are the last person who've heard about that.

It's already too late.

That is a word excited to get out.

Where do analysts expect these precious metals values to go from here?

But it's remarkable how much gold has soared past almost any analysts expectations at both this year and last year.

Looking into the next year, most banks most analysts are pretty bullish.

Bank for America sees five thousand dollars announced by the end of next year.

Most of the other banks, according to the most recent reports see it going higher.

Still, it's a notoriously hard metal to predict and to price because it doesn't generate an income.

The value of any financial security is a function of its income ultimately, and the possibility of that changing.

With gold, you don't have that, And it's so sentiment driven that I really I do feel sorry for anyone whose job it is is to predict where it's going to go.

What could actually happen to seriously jolt the price back down.

It's a very important question to ask.

It's a very good question to ask.

That could be kind of significant easing of tensions in the Middle East or in Russia and Ukraine.

More peace in the world.

Yeah, more good things and less bad things.

If you're willing to take that bet.

Yeah, if geopolitics will to turn that direction, then gold might find itself in a more and more marginal role.

There's not been many people who've been willing to take that side of the bet, to bet on kind of peace and trust and the kind of rebuilding of multilateral institutions, and that is part of the reason why gold has doubled in the last two years.

This is the big take from Bloomberg News.

I'm Sarah Holder.

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