Gold Hits Record High, What Would Push Price Above $3,000? (Uncut) 02-05-2025

Gold Hits Record High, What Would Push Price Above $3,000? | Gary Wagner

Inflation spiraling in a way that it did in 2020-21. I’m not saying go back to 9%. The one thing though, when we look at the price of gold and we look at the dollar, is that gold favors high inflation.

I mean, it thrives in an environment in which inflation is rising or is at above a level that people are comfortable with. Our rate cuts over. Well, the Federal Reserve paused rate cuts this week.

So what’s next for monetary policy? What’s next for interest rates, the dollar and gold? Gary Wegner is here to break this down for us. He is the editor of the goldforecast.com. Welcome back to the show, Gary. Happy New Year.

Well, I guess it’s, I can never figure out when to stop saying Happy New Year, but it’s the first time I think I had you on in the New Year. So Happy New Year to you, Gary. It is.

So I’ll say happy belated New Year to you, David. Happy belated New Year to you from all of us. Let’s talk about what you think about monetary policy.

First, the Fed cut rates in the last, in the prior FOMC conference, but not the last one. So we can talk about your outlook for monetary policy. Do you think that this is the end of rate cuts? I think that that is highly unlikely.

And I’ll explain why. If we think back to before the Fed began to raise rates, they were sitting between zero and a quarter percent, basically no costs at borrowing money. Inflation began to mount.

I believe March, 2022, it exceeded 8%. I think it might’ve ticked 9%. And so the Fed had to step in, use their tools to bring inflation to an acceptable level.

Their target has always been about 2%. So slowly through a series of aggressive rate hikes, they took it from 25 basis points up over 5%. Last year, they basically announced that they believed based on the data available to them that inflation was on a trajectory.

It wasn’t there yet, but it was on a trajectory, all things being equal. And that’s going to be the key as you’ll see, that inflation would slowly meander down to 2%. There would be a couple items that are sticky or persistent, but for the most part, the tools were in place to restrict the economy.

The economy was restricted to a degree that costs of goods or inflation began to come down because consumers weren’t buying as much. So they decided that they’re going to normalize interest rates. And normalizing interest rates, according to the Fed, was to basically move interest rates to a much more neutral stance, much more accommodative stance.

And I believe back last year, they were looking at about 3%, 3.5%. That has been their target. And they would do that with a series of rate cuts. Last year, I believe we had three rate cuts, a 50 basis point, and then two 25 basis points, taking interest rates down by a percent.

Inflation did continue to move down, but some parts of it, such as energy and housing, turned out to be more persistent than the Fed had hoped for. And so they decided that they want to spend a little bit of time without cutting or raising and pause, which is exactly what they did. It’s a huge revision.

The dot plot comes out four times a year. I believe it’s part of the SEP, the summary of economic projections. And it is the voting members stating where they believe inflation as well as interest rates will be in 2025, 26, 27.

And it dramatically changed with the number of expected cuts was greatly reduced to two or three this year rather than more. And so, A, a pause would be necessary. You can’t cut rates at every FOMC meeting.

There’s eight of them. When you’re only trying to get interest rates down to about three and a quarter, three and a half percent from just a couple of points above that. The question, will there be more rate cuts? I believe there will.

And I believe that there’s a, there will be at least one, but I think it’s more likely that we see the Fed enact two quarter percent rate cuts this year. So then, if you believe there’s going to be more rate cuts, then what’s your outlook for inflation? Is inflation going to be headed lower then? Well, that’s the wild card because I said all things being equal in my previous statement. However, with a new administration, one that likes the use of tariffs, if Trump is actually makes good on his proposals.

And the one thing that we have seen with this president is that he typically puts weight behind his commitment. So he talked about immigration. And of course, there can’t be the kind of mass deportation that many are fearful of, but they’ve already begun to do that.

He also said that he would penalize countries that weren’t working with him through tariffs, Canada, Mexico, and China in particular. And so what he suggested, I believe as recently as a week ago, this is a, this is a fluid situation, but 25 percent tariffs on Mexico and Canada and 10 percent additional on China. That will create inflation.

We can’t guarantee it, but typically that’s what we’ve seen in the past. So will inflation continue to come down depending on the strength and the magnitude and reach of these tariffs? Is it going to be these three countries? Is he going to tap the European Union? How heavily handed is going to be with tariffs? How high will they be? And what will the net effect be to inflation? So that whereas I believed many believed that it would come down, this puts a new kind of clog or wrench into the woodworks or into the works itself because it adds additional pressure for inflation to again, begin to grow rather than diminish. And so what we want to hope for is that inflation stabilizes and that whatever actions he actually goes through with, they are not tremendously detrimental to creating a greater level of inflation here in the United States.

All right. So let me share my screen and I’ll show you a gold chart and then I’ll let you share your screen so you can show your technical analysis. So this is what happened to gold over the last year, as you know, tremendous rally over the course of 2024.

However, we saw a little bit of weakness towards the later half of the year, in particular, November and December, and a rally again in the beginning of the year. So can you, first of all, explain why we saw weakness in the last half of 2020 or last month, rather, of 2024? Was that primarily due to Trump’s election win? Because as you recall, on the 7th of November, gold went down a lot. It seems that gold didn’t like Trump.

I think we spoke about that back then. Well, yeah, I think one of the primary factors that has created this volatility in gold has been dollar strength. Recently, we’ve seen in a very, very short term basis, we’ve seen weakness, but the dollar has moved from approximately 100 up to about 110.

And so that is a 10% increase in value of the dollar as it relates to the basket of currencies that the index composes. They are not weighted equally. The euro, I believe, is 60%, but you’ve got the euro, the Swiss, the sterling, the Swiss corona.

You’ve got currencies in there that are not performing as well. And it was dollar strength that really created a lot of the volatility. One, two, whenever you tend to see any commodity or stock go to an all-time record high, there is a decent probability that your interim and shorter term traders are going to pull profits, especially as we get to the end of the year when they want to close their books down and report what they’ve done to their clients in terms of profits over the year.

So we had a combination of that. The interesting that I’m seeing is really since October 2023, and that’s when gold was trading just around 2000, we’ve seen a climb up about 1800, 2000 to 28. But what is most interesting is what we’ve seen really recently, which is this last rally that began at about 2600 to about, now I’m looking at future pricing and this is April, about 2852.

So we had about 170, now about $180 price ascent in gold in a short period of time of just about a month. And so that has changed the dynamics in terms of the speed at which we’ve seen a gold’s value not only increase or accelerate, but the compression of the timeline it’s taken to get there. Can you show your screen now, Gary? I’d like to see you analyze this recent run up from like you said, 2600 all the way up to, well, we’re at 2793, but 2800, another tremendous rally, just kickoff 2025.

Let’s talk about what happened in the last four weeks. Okay. Is my screen up by chance? Yeah.

Okay. So this is a basic area chart. It’s a line chart drawn with weekly data.

We’re going back to about 2019. I really want to focus in on the point, I believe it’s right around here where about $2,000. That is the end of December 2019.

It then moves up as high as 2300. And during this period, you’re actually getting respectable corrections. In other words, from 2385 here down to about $2,000 in March of 21.

It moves back up, but it is a lower high than the previous high. And then another deep correction. And then you get a lower high, but you get kind of a plateau at around 2200, which takes us up to February of 2024, the real low coming in in October 2023.

And that is this dip here, because this is when I believe everything changed. We had the geopolitical environment got really hectic. We saw gold rise from what? $2,000.

And within about a four to five month period of time, rise to 2500. But the point that I’m trying to make is that if you look at the retracement from, I’m going to round down, but 2250 down to 2000 is about a $250 correction. And you look at the correction, compare that to 2250 down to 2170.

These corrections got much shallower. And so once we saw gold ramp up, and this, of course, is the record high above 2800. That’s really the only time recently.

And when I say recently, I mean within the last year, where we’ve seen a respectable correction, a market that is overheating and moves up either parabolic or exceedingly quickly tends to come down just as fast parabolic up parabolic down. And so we did see a sell off. But the most impressive part is really what happened during the last week of December, up to current pricing, because we’re literally looking at a month in time in which we saw gold gain tremendous value.

And that’s just an area chart. We can really see what happened today. This week was phenomenal, by the way, because we had the sell off that occurred on Monday, I think a $44 sell off, and then today’s tremendous rise moving above recent tops.

And so in terms of analyzing the marketplace itself, it gets to be very difficult to analyze how high a market could go when we’re at all time record high. So I’m just trying to get a sense of the moves we’ve seen recently. And I’ve broken it down into a series of two rallies.

I’m using Elliott Wave to accomplish that. But what I’m looking at is from October of 23, gold is sitting just at around 2000. It runs up approximately $500, a 27% rise, and it did that in 230 days.

And then corrected, we had a second leg of the rally. And on this rally, it took 122 days, and it increased at about $454. I simply averaged out these price moves.

And then from the beginning of this current leg of the rally, I’ve done what’s basically called a Fibonacci extension, which is how I have derived my projection. And this is for the first half to the third quarter of this year. And that is to see gold move substantially higher, well above $3,000, and actually breach $3,100.

That is my current assessment of an interim forecast for gold, David. And how long would that take to reach $3,100? First half to the third quarter of this year. Suppose the Federal Reserve were to not cut rates anymore because inflation remains stickier, then interest rates would stay higher.

Would that change your forecast at all? Any major change in what we’re perceiving as a likely course changes things. The one thing, though, when we look at the price of gold and we look at the dollar, is that gold favors high inflation. I mean, it thrives in an environment in which inflation is rising or is above a level that people are comfortable with.

And so that if the Fed paused, because when the Fed cuts rates, that’s also favorable for gold. But you get this push-pull effect where gold is going to act favorably to inflation. But if the Fed is not cutting rates, you don’t get that additional kind of a boost.

And so they don’t cancel each other out. But the item that has the strength is going to be the way of the prevailing winds, let’s say. And I think that we might see if we had to tone down my forecast, I still think it’s going to easily hit $3,000 and possibly challenge $3,100 in a more challenging environment.

In a more favorable environment for gold, it would barrel through $3,000 and not only challenge $3,100, but go in excess, $3,150, shy of $3,200 per ounce. Interesting. And what happens if, let’s say, geopolitical tensions die down in Ukraine or the Middle East, not die down completely, but if there was a resolution to the war, would there be a geopolitical risk premium deduction from gold? Well, you would have to think that there would be.

But let’s look at recent activity where, well, what’s going on in Russia and Ukraine is still elevated with not major changes. But in Israel, there was not a peace accord, but they had a truce. You’ve got the Palestinians moving back north.

There has been, and there’s been, the return of hostages. So we have seen a de-escalation of the geopolitical conflict in the Middle East. And then if you look at the price of gold, you can see that that wasn’t, it didn’t apply a lot of bearish pressure curtailing the upward move.

If it would have, I don’t think we would have seen gold spike as aggressively as it did. So if we get some resolution of conflict, which we all hope will happen, I think that the net effect to the rise of gold will be much more tempered because of the other conditions moving forward, which is the economic challenges, the inflation that seems to be persistent, and if heavy handed tariffs are actually implemented, could begin to accelerate. So you’re going to have these different factors and events kind of grinding against each other and the squeaky wheel, let’s say, will get the grease.

So whatever is most prevalent and pressing on the minds, shaping market sentiment will be the one that pushes the market the most, whether it’s curtailing the bullish move, moving it from bullish to bearish, which I don’t believe will happen, or accelerating the bullish rise of gold. Can we talk about anything that could push gold significantly beyond your baseline forecast? In other words, let’s get bullish for a minute, Gary, and put on our hypothetical bullish hats. What would have to happen for gold to spike to $3,500 this year, for example? Inflation spiraling in a way that it did in 2020, 2021, I’m not saying go back to 9%.

But right now, the Fed has been working to take inflation to a trajectory of 2%. It kind of settled down at around 3%. But it’s been decreasing, but at a slower pace, with some particular items being the cause of it, being why we’re seeing overall inflation being sticky, energy being a huge component, housing being another one, wages not so much.

And so that if we see inflation begin to accelerate at a faster pace, if we see it move back substantially and increase by half a percent, if it starts to go 3, 3.5% and a trajectory is perceived that it could be going higher than even that, that would move the needle quicker. Gary, do you think that gold will outperform the S&P 500 this year? I know that’s a difficult question. We’re just speculating, but maybe present it as a case, why or why not? When I first got in the industry, I was mentored by, I believe, to be a very, very intelligent and smart trader.

One of the adages he taught me early on was, Gary, it’s not a stock market, it’s a market of stocks. So when we talk about the S&P indices, it’s such a broad-based group of different companies doing different things. I want to separate that from individual companies.

So companies that are highly involved in tech, whether it’s Google, OpenAI, whether it’s Tesla, whether it’s Meta, that magnificent seven, Apple, they will continue to perform because the technology they are creating is outpacing the development of technology globally. They’re the leaders and at the forefront of new items. The whole idea behind AI is if they actually can harness it for different types of medicines by developing proteins that have never happened, that’s going to not only be exciting, but those stocks are going to continue to move higher and do so at a pace, I think, that will spin many analysts’ heads.

On the other hand, there are certain sectors that will perform on average adequately and some that will kind of diminish when we consider disruptive times, whether it’s the horse to the car, the industrial revolution, points in which the way things were done for hundreds of years are no longer done that way. That kind of disruptive technology, 3D printing was one. AI is definitely one.

And if they can continue to harness that and build it safely, if we’re not going to go to a Terminator scenario, which I don’t believe or I pray we don’t, but there’s a lot of people much smarter than me saying that that’s a possibility if we don’t do things right. I tend to be an optimist, but that shows my ability to be naive. But certain sectors are going to continue to outperform gold, 5X, 10X, the indices themselves, I think that gold and, for example, the S&P, I would put my dollars on gold.

But if I had to bet against, say, the NASDAQ composite, which includes that heavy tech sector, I think that the NASDAQ has the opportunity to outperform gold. So it depends on which indices, which stock, and what things we see transpire between now and the end of the year. Excellent.

Thank you very much, Gary. Appreciate it. Where can we follow you and learn from you? Absolutely.

Our dedicated website, thegoldforecast.com, it has a lot of videos. We have a YouTube channel, The Gold Forecast. And, of course, to show loyalty to really all of our listeners here at The Lin Show, if they put David Lin in a coupon box, if they decide to try it out, they’ll get 30% off.

But thegoldforecast.com is a great place. And YouTube has our entire library of over 2,500 videos that you can view at no charge. OK.

Thank you very much, Gary. I appreciate it. We’ll speak again soon.

Take care. Absolutely. Thank you, David.