The Two Key Factors That Will Drive Gold Higher

Editor's note: Lots of folks have given up on gold. But as we shared this week, the big rally we saw recently could be the beginning of a long-term surge for the metal. Our colleague and gold-investing legend John Doody agrees. In today's essay, he explains why two important forces are lining up in gold's favor today...


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

Editor's note: Given the ongoing situation in Russia... inflation... and the Fed's commitment to raising rates, you might think you know the whole story on gold. But an even bigger catalyst is brewing for the metal right now – one that most Americans are overlooking. And if history repeats, it could send a specific set of investments soaring... Learn the details here.

Further Reading

Gold boomed recently, soaring on these two factors. It has pulled back slightly since. But this signal shows the upside likely isn't over yet... Read more here.

"Nobody knows for sure how bad unexpected inflation will get," Mike Barrett writes. Inflation can come from surprising places. And that means its effects are likely far from over... Learn the steps you should take to prepare – and profit – right here.

Market Notes
THIS GROCERY-STORE CHAIN IS HITTING RECORD RESULTS FROM THE LINGERING PANDEMIC

Today, we’re checking in on a company that’s coming out of the pandemic stronger than ever…

COVID-19 turned the world on its head over the past two years. And it changed the way we go about our daily lives. Trends like telework and shopping at home became the norm. Today’s company was a big beneficiary from the at-home cooking trend…

Weis Markets (WMK) is a $2 billion Mid-Atlantic supermarket chain. Folks who got used to COVID restrictions have kept making meals at home. And despite supply-chain disruptions, the tight labor market, and inflation, Weis is still going strong… Recently, President and CEO Jonathan Weis said that results for fiscal year 2021 “significantly exceeded pre-pandemic levels.” He added that Weis had benefited from the at-home cooking trend… and that the last two years of net sales and income from operations “were the first or second highest in our company’s 110-year history.”

WMK shares are in an uptrend, up more than 100% in the past two years. They recently hit an all-time high. And with strong sales behind it, this company could keep growing from here…