(Kitco News) Markets are looking for the Federal Reserve to end its contractionary cycle by reducing inflation. But not everyone agrees with this assumption. Goehring & Rozencwajg sees inflation as a decade-long problem, driving new record gold prices.
Gold will have a big play for the commodity complex this year as prices rise above $2,050 an ounce, Lee Goering, managing partner of Goehring & Rosenkavage told Kitco News. “Gold will hit an all-time high this year. In August 2020, we hit $2,050 and then in March 2022. This year we’ll break the all-time high,” Goring said. The time has come for people to want to bullish gold. Since 2020, the average oil index is up 200%, and the GDX is at one point down almost 35% from its 2020 peak.
Gold will see this huge rally as the Fed is ending its aggressive tightening cycle and the market is not properly pricing in inflation. The Fed will stop raising rates, and then we’ll have a big inflation problem. This is the decade of inflation. Another spiral in psychology, Goring explained, is inflation.
And when people realize that inflation is not reaching the Fed’s 2% target as expected, they will turn to gold. “Right now, when inflation rises, the Fed raises rates and people sell gold,” Goring said. “And I think the psychology is going to drive inflation higher, the Fed not going to raise rates or hold back, and inflation is going to be a real problem.” said.
The 1970s is a great example of something like this already happening with the Fed, inflation, and gold. After the Federal Reserve began raising interest rates sharply starting in 1973, gold prices corrected by 45%, when the Fed finally stopped doing so a few years later, inflation was lower than last year. The base was still 5 percent, Goehring noted. Inflation has eased month-on-month, but is still very strong compared to last year.
The most important thing for the market is to realize that the Fed’s rate hikes are coming to an end. “That would be a big psychological boost to gold from $2,000 and the old high of $2,050,” Goring said.
The second point is for the markets to realize that inflation is not done. “Going back to the 1970s, when people saw that inflation was still a big problem, that’s when the price of gold started going crazy after it bottomed out at the end of 1976,” added managing partner Goehring & Rozencwajg. “That’s why this next move is going to be so exciting. There’s no resistance. I don’t know how high gold can go. I wouldn’t be surprised to see $3,000 this year. That looks really awful.”
One of the factors that raises inflationary expectations is the reopening of China. “The big shock of 2023 will be that China will see a huge jump, a lot of pressure on commodities and rising inflationary pressures,” Goehring noted. “I strongly disagree and say that in 2023 we will see significant economic growth globally and no recession,” he said.
Goering added: “When it is seen that inflation is not over, the Fed will back off again, pushing the problem to 2024.”
Other positive drivers for gold this year include the return of Western ETF investors and the continued addition of the precious metal to central bank reserves. “One of the fundamental fundamental changes this year has been gold-backed ETFs, which are entering a new phase of accumulation,” Goring said. It also shocked everyone how strong the central bank’s gold buying was.
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