Gold has been one of the best performing assets in 2024 so far.
It's up over 30% since the start of the year and recently hit a record high.
And with the central banks of the worlds largest economies -- the US, China and the EU -- now all cutting interest rates, will that add further fuel to gold's breakout?
For answers to all things gold, silver and the companies that mine them, we're fortunate to speak with Brien Lundin, CEO of Jefferson Financial, publisher of GoldNewsleter.com and producer of the excellent New Orleans Investment Conference.
Brien thinks that, if this current gold bull cycle acts like previous ones in history, that should bring the price of gold eventually up to $6,000/oz (or higher).
Here are my key takeaways from the interview with Brien:
Investors, ranging from institutional players to hedge funds and family offices, are preparing for a prolonged period of negative real interest rates driven by accommodative central bank policies. This trend, which has been in place for over 40 years, has created an environment where the serviceability of government debts depends on maintaining lower interest rates. Consequently, there is a gradual but impactful reallocation of portfolios toward hard assets like gold and silver, commodities, and real estate. This reallocation, though small in percentage terms, is significant for the smaller precious metals markets and has the potential to push prices higher.
The United States has reached a critical point in debt servicing, with costs surpassing $1 trillion annually and continuing to rise despite lower interest rates. This is primarily due to the accumulated debt that has built up over decades. The need to keep interest rates below inflation rates to sustain this debt load is putting immense pressure on the U.S. economy and contributing to the attractiveness of hard assets. This debt-driven economic model creates a persistent bullish environment for gold and other monetary metals, as investors seek to preserve capital against the eroding value of fiat currencies.
Gold has achieved a 30%+ year-to-date increase, marking one of its best bull market starts since the 1970s. The current bull market, which began around mid-2024, was initially fueled by central bank purchases and Chinese investor demand. Western investors started entering the market around July 2024, as indicated by significant inflows into gold ETFs such as GLD, signaling their anticipation of further price increases. The combination of institutional and retail interest is expected to continue driving the market, though with more volatility due to the speculative nature of Western investor behavior.
While the gold market is poised for continued growth, short-term corrections or sideways movement are likely due to
the overbought status of large speculative positions. These temporary pullbacks are part of the natural market cycle and serve to shake out weaker positions before the next leg higher. Over the long term, Brien projects that gold could reach $6,000 to $8,000 per ounce, depending on the duration and intensity of the current cycle. This estimate is based on historical trends where previous gold bull markets have seen prices rise between 5.6 and 8.2 times from their cycle lows.
Central banks have substantially increased their gold holdings since Russia’s invasion of Ukraine, spurred by concerns over geopolitical stability and the reliability of the US dollar as a reserve currency. This trend marks a significant shift in global reserve strategies, as gold has now overtaken the euro as the second-largest reserve asset held by central banks. The People's Bank of China has been a major buyer, and the overall trend suggests that central banks view gold as a crucial asset in maintaining stability amidst growing global economic and political tensions.
Silver, which has historically outperformed gold in bull markets, has not yet fully participated in the current rally, presenting a potential catch-up opportunity. The gold-to-silver ratio, which currently stands around 80:1, is expected to revert to more typical historical levels of 60:1 or lower as silver prices rise. If gold reaches the projected $6,000 to $8,000 range, silver could see prices soar to $100 or more per ounce, representing a threefold increase (at least). This movement would also benefit silver miners, which often offer higher leverage and returns compared to gold miners.
Gold mining companies, especially junior explorers and developers, are currently undervalued despite significantly improved project economics. Many gold projects that were considered uneconomic a year ago have become highly profitable at today’s prices, yet their share prices remain low due to a lag in investor recognition. Major gold producers are generating substantial cash flows, with margins exceeding 50% in some cases. As generalist investors begin to notice these cash flows, it is expected that mining stocks, particularly junior miners, will see strong appreciation. Investors looking to capitalize on this should consider high-quality junior mining stocks, which provide substantial leverage to rising gold prices.
Brien highlights Meridian Gold as a promising company with strong project economics, even at gold prices $500 lower than current levels. Despite not owning it himself, he sees significant growth potential and recommends investors consider researching it.
For the full interview with Brien, watch the video below:
___________________
For more deep-dive macro interviews like the one above, sign up for our free newsletter at: https://www.youtube.com/@
To schedule a free consultation with one of Thoughtful Money's recommended financial advisors, fill out the short form at: https://thoughtfulmoney.
