Once $2,000 breaks, gold is off to the races

22 March 2023

By Neils Christensen, Kitco News:

(Kitco News) – The gold market is again looking for a sustained push above $2,000 an ounce as investors look for safe-haven assets to shield themselves from the biggest global banking crisis since the 2008 Great Financial Crisis.

In a recent interview with Kitco News, Willem Middelkoop, chief investment officer and founder of Commodity Discovery Fund, said that he expects it’s only a matter of time before gold pushes to new all-time this year. However, he added that in the bigger picture, whatever prices are now, in three years, they will be a lot higher.

“Three years from now, we are going to look back at these gold prices as a bargain. We will see this as the start of when prices really exploded,” he said. “We are very close to pivot in the global monetary system.”

Middelkoop’s comments come as gold prices pushed to a 12-month high of $2,014.90 an ounce overnight. Although prices have backed off their highs, they remain within striking distance of the $2,000 level. April gold futures last traded at $1,987.89 an ounce, up 0.73% on the day.

Middelkoop said that the most significant driver for gold is the growing shift in globalization. He explained that the world is quickly moving towards a multipolar system as the U.S. dollar sees its role as a reserve currency start to weaken.

He noted that U.S. led-sanctions against Russia after it invaded Ukraine last year have pushed global financial markets closer to a major confrontation between Western and Eastern nations.

“Retail investors don’t get this, the media, in general, doesn’t get this, but at the highest level, central banks get what is happening. They are hedging themselves by buying gold,” he said.

Last year, data from the World Gold Council showed that central banks worldwide bought 1,136 tonnes of gold, the highest level on recording going as far back as the 1950s.

“And when the central bankers start to flee towards gold, that’s a very powerful sign that there’s a major distrust in the heart of the financial system,” said Middelkoop.

Leading central bank gold demand is the People’s Bank of China, which has bought 109 tonnes of gold since November. Middelkoop said he expects China to continue buying gold throughout the year.

“It’s no coincidence that China has just started to publish their gold purchases again. They are putting the world on notice that they have an international currency,” he said.

Although deglobalization will be the new driving force behind gold’s long-term rally, Middelkoop said that he expects the spark that ignites the explosion will be a pivot in the Federal Reserve’s monetary policy.

The global banking crisis, which claimed Credit Suisse as its latest victim with UBS announcing Sunday that it would buy the beleaguered institution, has created significant volatility in U.S. interest rate expectations.

Two weeks ago, markets expected the Federal Reserve to raise interest rates by 50 basis points when it announced its monetary policy Wednesday. Those hawkish forecasts have completely disappeared and markets now see a nearly 40% chance that the U.S. central bank will leave interest rates unchanged.

Middlekoop noted that gold‘s first foray to $2,000 started in 2019 when the Federal Reserve quickly cut interest rates, ending its 2015 tightening cycle. He added that he sees a similar scenario playing out as financial market turmoil will force the central bank to end its aggressive tightening.

“Once the $2,000 level breaks, it’s off to the races,” he said. “Once $2,000 becomes the new support, all the hedge funds, all the speculators will jump into the market.”

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