It began on a warm Florida evening, with a dinner and cocktails cruise… set against a backdrop of fear and inflation.

A few weeks ago, we gathered for Gold Stock Analyst’s Investor Day – our annual gathering of key executives representing our “Top 10” gold stocks and Silver Stock Analyst’s “Fave 5” silver stocks. We kicked off with a cruise along Fort Lauderdale’s Intracoastal Waterway… past the luxurious waterfront mansions and the marinas filled with superyachts.

The next morning at the new Hyatt Centric hotel on Las Olas Boulevard, the limited-capacity audience was treated to companies presenting, explaining, and answering questions.

And again and again, the subtext running beneath all the commentary included two factors that are always good for gold… rising inflation, and mounting investor fear.

Let’s take a quick look at those two factors today…

Inflation hit a 40-year high in January. That’s based on the personal consumption expenditures (“PCE”) price index, which tracks consumers’ actual spending.

The Federal Reserve likes this index because it reflects how consumers react to higher prices… shifting from steak to hamburgers when the former is too expensive. Since most buyers trade down, the PCE shows lower inflation than the Consumer Price Index, which tracks a fixed basket of goods.

For 2021, the PCE averaged a 6.1% increase over 2020, the biggest jump since 1982. For those who didn’t trade down and continued to eat steak, their inflation rate has been even higher.

And then there’s the war…

War brings fear. Russia’s horrible invasion of Ukraine drove precious metals demand higher because gold and silver represent true spending power that can’t be debased by the printing press. Before the war, the Russian ruble traded around 75R to $1. Now it’s well over 100R to $1 – in other words, less than a penny per ruble.

Gold jumped to around $2,000 per ounce at its most recent peak. But it hasn’t yet hit the $2,500-an-ounce level we have forecast.

We believe this is because gold makes up about 22% of the Russian central bank’s $630 billion in assets (according to the Wall Street Journal). International sanctions now prevent the bank from selling its assets held in other currencies and at other central banks. In other words, Russia can’t access the euros, yen, and pounds it needs to support the ruble and buy necessary supplies for its economy. That leaves only its gold available to sell.

To whom? China, possibly. China is already the world’s No. 1 gold producer, all of which goes into its own monetary reserves. So it has incentive to support the price of gold.

Regardless, until the market is certain that Russia will not (or cannot) dump its gold onto the markets, the gold price will fluctuate… before ultimately zooming higher.

Now, the war will end at some point. That could also send gold lower – but in that case, its price will be supported by its other leg, higher inflation.

While the circumstances were not exactly like today’s, consider what happened to gold when the Vietnam War ended and inflation spiked…

Gold traded for $167 an ounce on April 30, 1975, when Saigon fell. The inflation aftershock continued until gold peaked at $850 an ounce on January 21, 1980.

The same story could play out again.

We hope the war ends soon. But both these factors are in place for now… And that should push gold prices much higher from here.

Regards,

— John Doody

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Source: Daily Wealth