• Citi analysts predict gold could hit $3,000 an ounce
• The primary driver of the price surge would be rapidly accelerating de-dollarization
• To prevent portfolio losses, Americans are moving dollar-denominated assets like stocks into safe haven assets like physical gold.

Gold Could Hit $3,000

As gold holds steady, with critical support above $2000 an ounce, experts are saying that $3,000 an ounce is possible within a year’s time. While traditional concerns over recession and stagflation are driving safe haven demand, the rapidly accelerating de-dollarization movement may be what pushes gold to record heights.

Aakash Doshi is head of commodities research at Citibank. He said there is a chance for gold to surge 50% and hit $3000 with the next 12 to 18 months. At the very least, he sees gold averaging $2,150 in the second half of 2024. That’s up more than $100 an ounce from current prices. Bank of America is also bullish on gold. They see the potential for it to hit $2,400 an ounce this year.¹

If the country slides into recession, the Fed may cut interest rates. Gold typically has an inverse relationship with interest rates. If they go down, the price of gold goes up as interest-bearing alternatives like bonds become less attractive. However, Citibank thinks the major boost in gold prices will come from central banks buying gold as de-dollarization gains momentum.

“The most likely wildcard path to $3,000/oz gold is a rapid acceleration of an existing but slow-moving trend: de-dollarization across Emerging Markets central banks that in turn leads to a crisis of confidence in the U.S. dollar,” Doshi wrote in a recent note.²

BRICS+ and De-dollarization

De-dollarization is accelerating on several fronts. The BRICS Alliance is working to wean other nations off the dollar. Twenty nations have adopted a new Russian payment system to stop using SWIFT, the international interbank system that makes payments between 11,000 organizations in every country on the planet.

BRICS recent expansion is another major catalyst in the fall of the dollar. As of January 1st, Saudi Arabia, the United Arab Emirates, Egypt, Iran and Ethiopia joined the BRICS alliance. With the expansion, the bloc now represents over 3.5 billion people or 45% of the world’s population. Their collective GDP exceeds $28.5 trillion or about 28% of the global economy. The BRICS+ is also now responsible for producing about 44% of the world’s crude oil.

Experts say the admission of Saudi Arabia is epic because they are the linchpin to dollar hegemony. Having oil traded exclusively in dollars, i.e., the petrodollar, is key to US dollar dominance. If the Saudis begin accepting other currencies, the US could face a “day of reckoning.” The UAE, the seventh largest producer of oil, is also in talks to start trading their energy with up to 15 countries based in local currencies.³

The BRICS Alliance is also growing more integrated beyond using the new Russian payments system. Every OPEC country is part of BRICS member China’s Belt Road and Rail initiative. Saudi Arabia joined the Shanghai Cooperation Organization and the BRICS New Development Bank.

The BRICS common currency is the next stage of de-dollarization. Russia has declared that the BRICS common currency will be in focus this year.

“There will be a moment…where they issue a common settlement currency…tied to a basket of commodities. In particular, I believe it will be gold,” said Andy Schectman, President of Miles Franklin Precious Metals.⁴

Central Banks, De-dollarization, & Gold

⁵

Central bank purchases have already increased to record levels in recent years. They are seeking to diversify their reserves and reduce credit risk. BRICS nations and emerging economies want to defend against US dollar coercion. They need to insulate their economies from the sanctions currently punishing BRICS members Russia and Iran.

The BRICS countries are shedding US Treasuries and replacing them with gold. If central banks doubled their purchases, they would become the dominant source of demand in the marketplace. Already, the world’s central banks have sustained two successive years of more than 1,000 tons of net gold purchases. The sector was only 45 tons away from breaking record purchases made in 2022.

Last year, the People’s Bank of China led the gold market with its purchases. Analysts note that China’s gold holdings only represent about 4% of its total reserves, which means there is plenty of room to grow. They are followed closely by Russia.

Oil & Gold

The positioning of the BRICS Alliance could allow them to reap massive benefits from a spike in oil, including a resulting surge in gold prices. Increased profits from oil and increased value of their swelling gold reserves hastens their ability to drop the dollar completely.

Analysts say oil could go over $100 a barrel on escalating conflicts in the Middle East and Ukraine, deeper OPEC+ cuts, and supply disruptions in oil producing regions.

Higher oil prices often result into higher prices for gold. Though there isn’t a direct correlation, high oil prices can lead to higher inflation. A rise in inflation creates demand for gold to protect against the erosion of purchasing power.

Conclusion

The accelerating de-dollarization movement is poised to both weaken the dollar and boost gold prices. To prevent portfolio losses, Americans are moving dollar-denominated assets like stocks into safe haven assets like physical gold. With a potential upside of 50% within a year, gold can not only preserve value, but increase it. Contact us today to learn what a Gold IRA can do for you. Call American Hartford Gold at 800-462-0071 to get started.

Notes:
1. https://www.kitco.com/news/article/2024-02-20/citi-sees-potential-gold-hit-3000-thats-not-base-case
2. https://www.kitco.com/news/article/2024-02-20/citi-sees-potential-gold-hit-3000-thats-not-base-case
3. https://www.kitco.com/news/article/2024-01-19/brics-plus-expansion-accelerating-petrodollar-collapse-ultimately-leading
4. https://www.kitco.com/news/article/2024-01-19/brics-plus-expansion-accelerating-petrodollar-collapse-ultimately-leading
5. https://medium.com/@nassif.co.uk/gold-reached-an-all-time-high-last-year-and-theres-a-chance-it-could-continue-to-gain-momentum-d0f4265b3f64

 

• The stock market dropped over 500 on news of rising inflation
• Fears of higher-for-longer interest rates fueled the massive sell off
• To hedge against stock market volatility, investigate the benefits of a Gold IRA

Stocks Crash on Inflation News

A volatile stock market plummeted more than 500 points after the release of the most recent inflation data. Coming in higher than expected, the elevated Consumer Price Index (CPI) created fears of higher-for-longer interest rates. The extreme uncertainty haunting the market emphasized the need for safe haven assets to protect portfolio value.

The Dow Jones Industrial Average fell 525 points on the CPI news. It was the largest single-day drop since March 2023. The benchmark erased almost half its gains for 2024. The blue chip index nosedived more than 700 points at its session lows. Meanwhile, the S&P 500 and the Nasdaq also fell. All 11 S&P sectors ended in the red, with rate-sensitive names falling the most.

The selloff comes after the Dow hit a record high close and the S&P 500 closed above 5,000 for the first time. Investors were riding a crest of enthusiasm based on signals that inflation was under control and interest rate cuts were on the horizon. That optimism crashed along with the market.¹

²

State of Inflation

The latest Consumer Price Index report showed prices rose 3.1% for the 12 months ending in January. CPI rose on a monthly basis as well. Core inflation has been even more stubborn as housing costs have stayed higher than anticipated.³

Both inflation measures were hotter than expected. Economists thought inflation would slow to 2.9%. Shelter prices accounted for much of the rise. It contributed more than two-thirds of the headline increase. On a 12-month basis, shelter rose 6%.⁴

Food prices were also higher. But a drop in fuel costs is what caused headline inflation to be 3.1% while core inflation is up at 3.9%. With the Middle East so volatile right now, fuel could send inflation lurching back up on a moment’s notice. Inflation-adjusted hourly earnings increased .3% for the month. But, when adjusted for the decline in the average workweek, real weekly earnings actually fell .3%.⁵

The Fed vs Wall Street

Stock prices rose on expectations of a rate cut as soon as May. Now traders don’t foresee a first rate cut until June or July.

“The stock market can’t keep rallying if rates are going to be higher-for-longer — especially if the assumption that the Fed is completely done raising rates is incorrect,” wrote Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in a Tuesday note.⁶

Wall Street had priced in about six rate cuts for 2024. They interpreted Fed signals that rates would start coming down from 22-year highs. Atlanta Fed President Raphael Bostic squashed Wall Street’s optimism by saying he doesn’t see the Fed cutting rates until the summer. The Fed wants to avoid any upticks in inflation. They believe cutting too early could raise that risk.

“We continue to expect the FOMC to leave the Fed funds rate unchanged at the March meeting and to begin the easing cycle in May,” said Jan Hatzius, chief economist at Goldman Sachs.
While over 91% of market participants agree with Hatzius, the majority, 62%, don’t expect any move at the May meeting, according to the CME’s Fed Watch Tool. Expectations for June are even more iffy, with just 24% expecting a cut.⁷

The Fed is, and has always been, focused on inflation. They explicitly have stated that rates won’t come down until there is clear data that inflation is on a definite trajectory to 2%. With continued growth and a strong labor market, the Fed does not feel the need to worry about high rates crushing growth.

But an overeager Wall Street only seemed to be hearing what they wanted to hear.

“The much-anticipated CPI report is a disappointment for those who expected inflation to edge lower allowing the Fed to begin easing rates sooner rather than later,” said Quincy Krosby, chief global strategist at LPL Financial. “Across the board numbers were hotter than expected making certain that the Fed will need more data before initiating a rate cutting cycle.”⁸

Conclusion

Wall Street may be setting themselves up for a bigger fall. A Bank of America survey found investors are cutting cash holdings and plowing it into stocks. Global stock allocation is at a two-year high. It seems as if investors are experiencing FOMO on the surge of the ‘Magnificent 7’ tech stocks. But they are building on uncertain foundations. Even a slight uptick in inflation sent the market plummeting. Overvalued stocks could fall even further with just a hint of negative news from the Fed.

Therefore, now is the time to look for assets that can protect the value of your portfolio, such as physical precious metals. Even with the prospect of higher-for-longer interest rates, analysts point out that gold is staying in a range of approximately $2,000 and $2,100. Worsening economic, political, or financial issues could take gold over $2,100. When placed within a Gold IRA, you can obtain wealth protection and tax advantages. To learn more before stocks dive again, call us today at 800-462-0071.⁹

 

Notes:
1. https://www.cnn.com/2024/02/13/investing/stocks-tuesday-january-cpi/index.html
2.https://www.google.com/url?sa=i&url=https%3A%2F%2Fwww.bloomberg.com%2Fnews%2Farticles%2F2024-02-12%2Fstock-market-today-dow-s-p-live-updates&psig=AOvVaw16g_tClW31nt2C9iST6phQ&ust=1708032467742000&source=images&cd=vfe&opi=89978449&ved=0CBYQjhxqFwoTCJjl1friq4QDFQAAAAAdAAAAABAE
3. https://www.cnn.com/2024/02/13/investing/stocks-tuesday-january-cpi/index.html
4. https://www.cnbc.com/2024/02/13/cpi-inflation-january-2024-consumer-prices-rose-0point3percent-in-january-more-than-expected-as-the-annual-rate-moved-to-3point1percent.html
5. https://www.cnbc.com/2024/02/13/cpi-inflation-january-2024-consumer-prices-rose-0point3percent-in-january-more-than-expected-as-the-annual-rate-moved-to-3point1percent.html
6. https://www.thestreet.com/investing/stocks/did-inflation-deliver-knockout-blow-in-stocks-fight-the-fed-battle
7. https://www.foxbusiness.com/markets/dow-plunges-worst-day-2024
8. https://www.cnbc.com/2024/02/13/cpi-inflation-january-2024-consumer-prices-rose-0point3percent-in-january-more-than-expected-as-the-annual-rate-moved-to-3point1percent.html
9. https://www.kitco.com/news/article/2024-02-13/higher-longer-interest-rates-mean-lower-longer-gold-and-silver-prices-cpm

• New York Community Bancorp shares plummeted due to devalued assets and tighter regulations
• The sinking regional bank sparked fears of a sector wide banking crisis
• A Gold IRA can insulate portfolios from the impact of a collapsing banking system

Banking Crisis Blowing Back Up

It has been one year since the banking crisis resulted in the second and third largest bank collapses in US history. And now a new troubled regional lender, New York Community Bancorp (NYCB) is stoking fears that the simmering banking crisis is about to reignite.

New York Community Bancorp stock plummeted after releasing a terrible earnings report. The report showed massive, unexpected losses on commercial real estate loans. The bank revealed a fourth quarter loss of $252 million instead of a third quarter gain of $207 million. In response, the bank slashed its dividend by 70% and was forced to stash a half billion in cash away to protect against future losses, plus $185 million in net charge-offs. Their shares have lost almost half their value in a week, dropping 44.6%.¹

²

Even worse, this came as a shock because the bank had not prepared markets for the bad news. Moody’s has since put its ratings of NYCB under review. The bank shares can now be downgraded into “junk” territory.

The fall of NYBC ties directly back to the earlier stage in the banking crisis. NYBC ballooned in size last year after taking over the assets of the fallen Signature Valley Bank. Not only did NYCB trap themselves with the flailing SVB assets, but the acquisition also pushed them above the $100 billion asset mark. That forced them into tighter government standards that were imposed to prevent another round of regional bank collapses. NYBC had to devote more funds to make sure they could stay liquid in case of a crisis.

Fear of the Crisis Spreading

Fears of contagion amongst regional banks grew. Regional banks are overleveraged with loans to a desperately struggling commercial real estate sector. The average regional bank stock has lost 10% over the past week.

Other banks are drawing scrutiny. M&T bank has similar size and assets as NYBC. Big banks have been bracing against real estate losses by setting money aside for months. Overseas banks are not insulated from the panic. Azora Bank of Japan saw shares drop 20% due to its portfolio of US office loans. It could have fallen further if there wasn’t a maximum drop allowed on the Japanese market. Deutsche Bank had to increase its loss provisions for its US commercial loans nearly fivefold.

Fed Chair Jerome Powell described the situation as a “sizable problem.” The rapid increase in interest rates is what doomed Signature Valley Bank. High rates combined with low valuations to put commercial real estate holdings underwater. But there was a secondary effect. Banks had to raise interest rates to compete with the government for depositors. This eroded their net interest income – the difference between what lenders earn on loans and pay on deposits.³

The Federal Reserve put a lid on the earlier phase of the banking crisis by printing money and throwing it at the banks. Their “Bank Term Funding Program” with $25 billion in new money paused the crisis without solving the underlying problems.

Bank Runs

Last year’s banking crisis was made worse as fears of a bank run grew. Customers withdrew $42 billion in a single day from Silicon Valley Bank. It was left with $1 billion in negative cash balance. The staggering withdrawals unfolded at a speed enabled by digital banking and were likely fueled in part by viral panic spreading on social media platforms and, reportedly, in private chat groups.⁴

Regulators say a run is unlikely. But it is not impossible. Like they say, a flood always begins with a single drop of rain. With banks required to only keep a small fraction of customer deposits on hand, another run could be disastrous.

And with $1.5 trillion of commercial real estate loans hovering near default, there is reason to believe a nationwide banking crisis could flare up to epic proportions. A new report from the National Bureau of Economic Research indicates that nearly half of all banks now risk default. Even a 10% default rate would cost commercial banks $80 billion.⁵

The floodwaters could break as soon as March 11. On that date, the Fed’s emergency bank funding program will shut down for good. Without a government bailout waiting in the wings, the country may be stricken by a full-blown banking crisis that affects every sector of the economy and sinks the stock market.

The government recognizes the danger even if they aren’t prepared to handle it. The Financial Stability Oversight Council, of which Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell and US Securities and Exchange Commission Chair Gary Gensler are members, released a report last December that cited commercial real estate as a major potential financial risk.

“As losses from a [commercial real estate] loan portfolio accumulate, they can spill over into the broader financial system,” they wrote. “Sales of financially distressed properties can reduce market values of nearby properties, lead to a broader downward CRE valuation spiral, and even reduce municipalities’ property tax revenues.”⁶

Conclusion

The only people profiting from the failing banks are the short sellers who made over $685 million in paper profits. And that is on top of hedge funds clearing unrealized profits of $7.25 billion after the March 2023 bank failures.⁷ If you aren’t in that elite club of investors, then you need to take precautions to protect the value of your portfolio. With no counterparty risk, a Gold IRA from American Hartford Gold can insulate your portfolio from a collapsing banking system. Contact us today at 800-462-0071 to learn more.

Notes:
1. https://www.cnn.com/2024/02/06/investing/premarket-stocks-trading/index.html
2.. https://www.nytimes.com/2024/02/06/business/banks-real-estate-fears.html
3. https://www.nytimes.com/2024/02/06/business/banks-real-estate-fears.html
4. https://www.cnn.com/2023/03/14/tech/viral-bank-run/index.html
5. https://moneyandmarkets.com/2024-phantom-bank-crisis/
6. https://www.cnn.com/2024/02/06/investing/premarket-stocks-trading/index.html
7. https://www.cnbc.com/2024/02/01/us-regional-banking-shares-tumble-for-second-straight-day.html