$3,700 Gold Next (Uncut) 04-24-2025

$3,700 Gold Next: ‘Chaos Premium’ Drives Historic Rally | Nicky Shiels

Right now, there’s no asset class really correlated with gold. It’s on its own trajectory and a large part of that is because of central bank demand. Let’s take your new forecast now, now that we sort of way past your $3,200 base case.

Do you have an update for us? Nikki Shields, head of metal strategy at MKSPOP joins us today to talk about gold, silver and the precious metals complex overall. Gold is hitting historic highs. We’ll talk about what’s next.

Nikki, good to see you. Welcome back. Thanks, David.

Good to be on again. I had you on in December. People can check out our last interview from a couple of months ago.

Later in the year, you had called for a base case of gold reaching $3,200, bear case around $2,200. We’re nowhere close to those levels, but people are… I’m seeing posts on social media about gold investors themselves saying, this is scary. I’m happy it’s gone up this much, but I’m a little bit scared.

Should we be a little bit scared of current levels, meaning this is a bit overbought and it’s time for a pullback? What do you think? Yeah. I think you’ve got to look at it obviously tactically and then also structurally. If you take a step back and I spoke to you $800 ago, a lot of things have changed since then.

We right now are in a regime where there’s just a global de-risking of US assets and it’s everything from US equities to the US dollar to the questioning of actually US fixed income products and whether they are a safe haven given just the policy U-turns and what the Trump administration has put out. So funny enough, when I spoke to you and probably about a couple of months ago, it was about Tina in US equities, right? It was about US exceptionalism and gold was sort of being dragged up with that and that’s sort of being turned on its head right now. And it’s just the shrinking pool of havens, whether it’s the yen, whether it’s the Swiss franc or gold, as a basic hedge just to US ink exposure or US exposure.

So yes, I do think over the last few days, gold has certainly overshot itself and you saw the sort of drawdown today after Bassan’s comments, but structurally it’s still a buy the dip environment and we don’t see that going away anytime soon. How much of gold’s rise to above $3,400 can be attributed solely to the decline of the dollar? Meaning, I mean, it’s priced in dollar terms, so it hasn’t really gone up in other currencies. Can you make that argument? To a degree.

I think the dollars certainly fueled a lot of, obviously, the recent repricing in dollar terms. But you look at gold in sort of these other safe haven terms, whether it’s yen or the Swiss franc, and that’s been relatively stable, but you look at gold in your sort of EM currencies or your commodity-sensitive Chinese currency, such as the Rand or Aussie dollar or sort of Canadian dollar, and I mean, they are even more parabolic than the gold in US dollar price charts. So it has been, overall, it has indicated that this isn’t only a dollar-driven gold move, it’s a gold-for-gold move, as in investors are buying gold for gold, not just as a hedge against the weakening of the USD.

Yeah, and if you look at my screen here, this is the GDX, which is the Venet gold miners ETF, versus the SPX. The SPX is up about 4% year to – no, I’m sorry, that doesn’t make sense. Let’s take year-to-date.

It’s down about 10% year-to-date, and the GDX is up 45%. So one could make the argument that there is still investment appetite for the gold equities complex as well, not just if gold hasn’t been going up only because the dollar’s been weakening. There’s appetite for gold products out there and it’s beating the market.

Yeah, that’s a good point, because I think it does also indicate sort of what I alluded to, that there’s this sort of shrinking pool of havens, and whether it’s currencies or gold, but it’s sort of gold and gold-related products, so there’s a scramble. Perhaps you’re not invested in gold at $3,500 and willing to buy up there, but you’re looking at sort of underappreciated gold-related asset classes as well, which sort of also takes you to silver, right? Yeah, absolutely. So let’s take your new forecast now, now that we’ve sort of way past your $3,200 base case.

Do you have an update for us? So I literally just put out a technical update today. It’s through everyone’s average and high forecast within a couple of weeks, but I think you’ve got to think outside the box a little bit with gold in terms of just upside targets. If you think about the fact that the inflation adjusted gold price high is actually $35.80, so that was the Jan 1980 high in gold in 2024 dollar terms, so that showed your next target is about $100 up plus.

Obviously, you then get to $3,600 or your psychological levels, but overall, on average, over the past 30 years, gold’s max annual gains have been 40%. Today, we printed 33%. So in 2006, 2009, and 2020, gold reached a sort of max high of 40% annual gains, and I think that average now then takes us to $3,675.

So right about $3,700 is probably the next upside target or sort of ceiling for 2025. I know that when Russia invaded Ukraine in 2022, people were talking about a geopolitical risk premium, a war premium, if you will, for gold, the number of ranges, but I’ve been getting around a consensus of $200 at a time. Can you apply the same kind of analysis here such that if, let’s say, the trade war de-escalates, we can expect some sort of premium to erode, meaning gold will fall by a certain amount? Yeah, so I think there’s certainly, and it’s really explained if we look at your sort of known flows, which is your components of trade or your futures positioning and your ECR positioning, which year-to-date only explains 13% of price action before Russia invaded in the years before Russia invaded and basically changed the rules of the game, and really drew in central bank buying, COT and ETF flows actually accounted for 86% of price action.

So it really indicates that the driver CTI is OTC, physical and central bank buying flows, which makes the market a lot less transparent than it was pre-2022. So yeah, trying to put a premium on this stuff because I think it’s certainly been accelerated by the fact of, and let’s talk about this global de-risking of US assets. So you’ve got a trade war premium, you’ve got a general de-dollarization premium, you’ve got a central bank premium on top of that, which has started.

I do think, you know, gold, the dips, the ranges are getting wider, right? We’re seeing increasingly more $100 plus days, but that’s just because the price is higher. So, but I do think, you know, sort of a $100 dip is a decent buying opportunity, certainly after like the recent run. Do we have data, Nikki, on who has been buying gold in the last couple of months? Has it been mostly North American buyers? Has it been Chinese buyers, like it was the case, I think a year and a half ago? Central banks, retail, institutional? Yeah, that’s a good question because I think it really speaks to whether this rally has legs.

And if we’re firing on all cylinders in terms of demand, you could then make the argument that we’re kind of near the peak, but really we aren’t. So we know it’s been central bank buying since 2022, which has really ramped up given trade tariffs and the accelerated de-dollarization theme. China ETFs have really engaged for almost the first time in recent months, sort of mimicking what we’re seeing in Western ETF inflows.

You’ve got Asia buying and that’s globally sort of good it’s the Middle East, it’s Southeast Asia, it’s India. China is now the premium versus the global benchmark pricing. So those who are not fully engaged, I would say would be the jewelry sector.

And then Western retail has somewhat been reignited recently, but it’s just is nowhere where the FOMO buying we’ve seen in recent price spikes. So gold, and again, and also your managed money, your COT sort of positioning report is indicating that really there hasn’t been an overreach from your, largely from your sort of macro level institutional crowd at all. The notion that gold is a safety hedge against uncertainty versus gold is a safety hedge against higher inflation, which narrative makes more sense right now.

In other words, what is the possibility or this economic scenario that gold is most likely pricing in, higher inflation or perhaps more chaos in the world or perhaps both? Well, the safe answer is both. But yeah, I do think it’s pricing in more of a chaos, let’s call it a Trump chaos premium or sort of uncertainty factor. And again, that goes down to policy and given the fact that you look at economic data and gold’s not reacting much to NFP or sort of Fed speak or your traditional macro econ data, it’s reacting more to Trump or percent comments around trade war and it’s the U-turns and the policy, the uncertainty around policy direction that is creating sort of this chaos premium in gold.

Yes, the after effect of a trade war, if it, you know, in a sense that there is going to be one is ultimately stagflationary, right? It’s growth down and inflation up, which a stagflationary environment is ultimately it’s a Goldilocks backdrop for gold. But for now, I think it’s predominantly sort of your chaos or uncertainty premium. And I’d just like to point out the correlation between gold and certain assets here.

So this is the 10-year yield. And up until basically April, you’ve been seeing a pretty steady relationship whenever yield rose, gold would fall and vice versa, sort of, you know, bonds and gold moving in the same direction. Now we’re seeing an environment where yields are rising alongside gold.

Is that abnormal, Nikki? That absolutely has been abnormal the past couple of decades. But it goes to the fact that you have global investors or largely, you know, sort of non-U.S. investors who are questioning the safe havenness of fixed income, U.S. treasuries. And so if there is a rotation out of U.S. treasuries and into, you know, the shrinking pool of havens, gold, yen, Swiss franc, these markets are just incomparable to the size of your fixed income market.

So, you know, there’s that question of, okay, is China, given the volatility in fixed income recently, I mean, is that, was that a basis trade unwind or was that China or Japan really sort of deleveraging some of the U.S. dollar, U.S. exposure and dumping bonds in exchange for gold? And I think that that really is the large sort of structural underpinning into why gold has diverged away from sort of rates in the most sense. Yeah. And the other interesting thing is that yields are rising alongside the dollar falling, which going back to what you said, people are dumping U.S. dollar denominated assets like treasuries.

I wonder why that is. What would you attribute this unwind of the dollar trade to? Is it loss of faith in the dollar or treasuries? I mean, isn’t it still the safest bond asset in the world, Nikki? It’s the political regime and uncertainty around policy. So it started off with the trade war, the announcements of on Liberation Day of tariffs that were larger in both breadth and depth.

And then the subsequent U-turns and change in policy from the current administration has really rattled foreign investors to anything, I say USA Inc., and it’s the U.S. dollars, U.S. equities and U.S. bonds. And it’s a de-risking of U.S. assets as a whole, which is ongoing and it’s sort of, yeah, it basically puts gold back in the limelight, right? Let’s take a look at how silver has performed relative to gold. So gold is up about 28 percent year to date.

It’s moving as we speak. Silver is up 10 percent, a measly 10 percent, Nikki, still doing quite well. But people have commented that this underperformance of silver relative to gold is an indicator of a recession.

Historically, where the gold-silver ratio spikes, it’s at the onset of a recession. Do you agree with that analysis? Yes, I do. I do think generally, if you look at any kind of, you know, fear-haven ratios, obviously gold-silver being one of them or gold versus copper or gold versus oil, you know, obviously outsize moves in those ratios really do sort of sync up with a slowdown or perception of a slowdown or a recession and are recessionary indicators.

So, yeah, I would agree with that fact. And it ties in with expectation and ties in with the fact that, you know, we’re looking to kind of front-load the pain if these tariffs do go ahead and you’re looking to front-load a recession. So, yes, it is sort of, in my mind, a true reflection of market expectations.

Do you have an updated forecast for silver for us? So, I actually was extremely bullish. Everything is pre-tariffs, right? So, my original forecast was, you know, looking for silver to generally trade within the $35 to $40 range based on this idea of, you know, we’re actually going to get reflation. But, you know, the Trump tariffs have basically turned that on its head.

We’ve got urban extension for havens. We’re not getting that reflation trade in the macro environment. So, I do think silver will remain pretty much contained in $30 to $35 range.

And, you know, I don’t see it outperforming. I do see it being pulled alongside gold. We do see investment demand picking up.

It is obviously a very cheap alternative to gold. But at the same time, a trade war is going to diminish global growth and it is going to dent industrial demand, which is a significant portion of the silver balance sheets. Now, silver, is it going to start trading more in line with gold and monetary metal this year or more in line with an industrial metal like copper? Let’s take a look at copper, actually.

Let me pull that up while we talk about this. This is copper versus silver. Yeah, more of a correlation there.

Right, right. And copper is certainly seeing a bit of a bounce. Arguably, that’s from what I hear is, again, it’s China coming in.

I think a lot of the threat of tariffs has brought forward a lot of consumer demand in expectation of that. Yeah, I think silver does have that ability to sort of chop and change. It will really correlate with gold.

Right now, there’s no asset class really correlated with gold. It’s on its own trajectory and a large part of that is because of central bank demand. So silver, for the most part, will sort of internalize a mix of sort of copper trends and gold.

So, you know, I think sub 30, you absolutely see a ton of sort of your more industrial users coming in and it’s been very well supported there and obviously has proved to be pretty short lived. But again, once it gets towards 33, which is its current resistance level, and then back up at 35, it’s extremely sticky up there. And I think a lot of producer related flow has come in and just it hasn’t really enticed any sort of the generalist investor in order to take it out to the next level above 35.

$35. So you’re less bullish on silver than you are on gold. Is that correct this year? Yes.

Less bullish, but still bullish. The notion that silver being an industrial metal is a signal for global growth and a slowdown. How much of that is true? And what is I think the broader question would be in the metals complex, would there be a commodity that is better at being an indicator, a leading indicator for global economic growth? I think, you know, they call it Dr. Copper for a reason.

I think certainly copper is a better proxy for global growth or global recessionary concerns. I think the ratios are particularly interesting. Again, we look at the sort of gold copper ratio or, you know, gold silver.

I think those relative values, gold oil certainly have a sort of, I guess, this preview of some sort of good insight into a slowdown in the global economy. So, you know, all three of those are pretty much indicating, especially on a relative basis, that world economic growth is slowing. I think we’re already seeing developed markets, central banks, cutting, right? Recently, it’s just the Fed has sort of been on hold and there’s a bit of a sticky point around that.

What other geopolitical forces are you watching in relation to gold in particular? So here’s a story from the FT just today. Vladimir Putin offers to halt Ukraine invasion along current front lines. So this is a major development.

So Putin has offered to halt his invasion of Ukraine at the current front line as part of his efforts to reach a peace deal with U.S. President Donald Trump. The Russian president told Steve Whitkoff, Trump’s special envoy during a meeting in St. Petersburg, that Moscow could relinquish its claims to areas of four partly occupied Ukrainian regions. The article then goes on to say that this is probably a ploy to lure the U.S. in for more Russian demands.

But anyway, for right now, they’re open to negotiations and pausing any further advancements into the west of Ukraine. Would a de-escalation, should it happen, have any material impact on the gold market? Technically or in theory, you know, any de-escalation, we’ve got two sort of ongoing hot wars, obviously one in the Middle East and one in Ukraine and Russia, that absolutely should take some of the air out of gold. But we’ve seen, you know, we’ve gone through the cycle of escalation, de-escalation the past few months at the same time that we’ve had a sort of backdrop of escalating trade war.

And the bullish tailwinds from the implications of a trade war far outweigh sort of any de-escalation in the geopolitical front. So it’s a bit of a, not a side story. I think it’s something to keep an eye on, but it’s certainly not a driver alongside macroeconomic data.

It hasn’t been a driver of gold price action, I would say, over the past few months, even years to date. Do you think the Fed, with their monetary policy, would impact gold in any material way this year? Could they have any surprises? Per your analysis, maybe the long end of the curve would move in a direction that may or may not be favorable to gold. Have you looked at that? Yeah, so I think, you know, again, it’s also one of those, the golden, gold’s relationship with the Fed has tended to be, obviously has a very close relation with the Fed.

But again, it’s, and it started last year. Recall, we had, you know, I think the market was pricing seven rate cuts for the Fed in the beginning of the year, and it was dwindled down to about one. And gold, yeah, gold rose in a one-directional fashion.

So it does have the ability to sort of shrug off any hawkish news from the Fed on a longer-term basis and sort of internalize any bullish developments, whether it’s a dovish outcome from the FOMC or more rate cuts than expected. So, you know, I think it has somewhat of a reading on gold pricing. I just don’t think the Fed, the Fed has been backed into the corner this year, and I think it’ll be very interesting to see how it plays out with Trump.

Obviously, we’ve seen the pressure on the Fed now from Trump, which in and of itself has been worth about $150 higher in gold price. So it’s, the Fed, you know, you’re either going to be behind or ahead of the inflation curve, and gold is kind of pricing in either outcome because you’re either going to get lower real rates or you’re going to force this sort of deep recession. And in both outcomes, it’s pretty bullish gold.

Do you think there’s going to be more central bank buying this year, more so than what’s already happened? Presumably, a lot of central banks will probably want to hedge against the US dollar, even if Trump has taken some tariffs off the table on countries that haven’t retaliated. So what is your assessment on future central bank buying of gold? Yeah, I would, I would expect central banks to either maintain or increase their gold holdings versus gold, the gold holdings as a whole versus last year. I, what is, what is actually interesting in the World Gold Council puts out stats on those, you’ve got the official central bank stats, which each central bank releases to the IMF.

You’ve got the official stats, but you also have unofficial stats. And if I recall a few months ago, Trump did highlight that if any country is seen to be de-dollarizing or actively shunning the USD, he has, he has threatened tariffs. So I do think a lot of that central bank buying this year will, will go relatively more underground or will be less or just won’t be as officially reported.

So it gets a little tricky with the data, but I do think as a whole central banks are certainly ramping up their, their gold buying programs. And that’s very notable with what the trends we’ve seen from Asian central banks, emerging central banks, and even Eastern European central banks. Okay.

And then finally, you mentioned stagflation could be a possibility, but that could still mean some positive growth. What is your assessment on whether or not we’re getting a recession, which is negative growth? Probability of a recession, I mean, a lot is policy dependence. And I think we, we sort of in the eye of the storm, storm in sort of the first half of this year to see, see how that plays out.

I think data, data will be very important. But again, I think it’s this tightrope between walking between a mild recession or sort of stagflation in the States. And I mean, the gold price is pretty much telling you that.

And then certainty around economic outcomes. You know, you, you, you look at some of the bank forecasts and sort of growth expectations and amongst every analyst and it’s, it’s, it’s been changed on a weekly basis. It’s the, like the, the only certain, the only certain outcome is uncertainty.

And I think, you know, goes back to that sort of uncertainty chaos premium that we’re talking about earlier. That’s a, that’s a good summary. Well, I appreciate your, your insights and your thoughts.

Where can we follow you, Nikki, and, and subscribe to your work? You can get hold of me on my email, nikki.shills at mkspamp.com. And I’m on Twitter as nixsa84. Okay. Any particular story behind that handle? Or is that just a random generator? It’s, I mean, I’m from South Africa, so yes, there, there’s, it’s my name, SA.

Yeah. All right. Good.

All right. Well, that’s easy to remember. I’ll put the link down below.

So maybe, maybe people can check out your work there. Thank you very much, Nikki. We’ll speak again soon.

I appreciate you coming on. Great. Thanks, David.

Have a good one. Yeah. Thank you for watching.

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