HOLTHE: Economic cycle suggests gold set for remarkable gains

'Gold is money. Everything else is credit.” JP Morgan 1912.'
Gold storage
Gold storage Courtesy Royal Canadian Mint
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Sponsored content: Kris Holthe is a precious metals broker with Calgary-based New World Precious Metals

Counter-party risk is the risk of one or more parties in a financial transaction defaulting or failing to meet their obligations of the trade. Gold and silver have no counterparty risk. If you own physical precious metals, there is no other party involved, which means no counterparty risk. Precious metals are some of the only forms of money that have this distinction. They are not a promise to pay, they are payment themselves.

Gold and silver have been used as money for thousands of years and are still used as money today, albeit silver to a lesser degree. The Bank of International Settlements (BIS,) often referred to as the ‘Central Bank of Central Banks’, established gold as a Tier 1 reserve asset in 2021 alongside the only other Tier 1 reserve asset — US dollars held in treasuries.

Tier 1 reserve assets are considered riskless assets meaning the BIS classifies them as having a zero percent risk weighting. They are held by the banks and used as collateral, or exchanged for fiat currency.

With the continued talk of tariffs, gold is moving from London to the United States. Traders are pre-emptively acting in anticipation of having to pay higher prices for inbound gold if they are required to deliver on their derivative positions following the implementation of tariffs.

Since the beginning of the new year the price of gold has appreciated 6%. Tariff talk has been a major contributor to this price move, bringing the metal to its highest price since October 2024. The current price is less than 1% from its record, set in 2024. Fears of reinvigorated inflation, increased flows into exchange traded funds, continued geopolitical pressures, as well as record setting central bank purchasing, has pushed the price to these levels over the last few years.

In 2024, gold started the year at $2,063 per troy ounce and closed the year at $2,622, appreciating 27%. A record high was set in October 2024 at $2,788. Gold closed the trading day January 24th at $2,770 making for a 6% gain in 2025. If price appreciation continues at this rate gold will be closing the year much higher. Gold is anticipating something.

Eastern central banks have been buying record-setting quantities of gold for 2022, 2023 and 2024. This buying has been one of the main drivers for the price of gold, setting the new high in 2024. Gold hit 36 new all time highs in 2024. Some market analysts expect continued record central bank purchases in 2025.

The US dollar was unpegged from gold in 1971 at a price of $35 USD per troy ounce. Since then there have been two notable periods where there was significant price appreciation. The period of 1972-1980 had the gold price appreciate 800%; 2002-2011 gold appreciated 800%.

Gold has no guarantee of increasing in price year over year but the historical long term average price appreciation is 9%. Commodities tend to move in cycles. I believe the recent gold bull cycle began in 2015 when gold was priced at just over $1,000 per ounce. If history repeats, and gold appreciates 800%, the price could reach $8,000 per ounce.

Some retail investors are not aware of what is going on in the international metals markets. Many retail investors are selling their metals, taking advantage of the rising prices. Some analysts believe this is due to tighter economic conditions and flat wages, putting people in the situation of having to liquidate savings to pay bills. Regardless of the reason, retail metal has been flowing back to the retail dealers who are selling to the wholesalers. The metal is getting refined into the larger bars and sent to the derivative exchanges as good delivery bars in preparation of closing short positions and making delivery.

President Trump is openly talking about reducing interest rates and the value of the US dollar. If this occurs it will be a tailwind for the price of gold. Economic conditions are setting up for another good year for gold.

Nowadays there are many ways to invest in physical gold. People can purchase retail metal for delivery; physical metal can be purchased through registered accounts such as RRSPs and TFSAs; as well, there are international jurisdiction depository options.

Gold is an insurance policy and has historically held a position in a balance portfolio. It is worth understanding the benefits of owning gold.

Sponsored content: Kris Holthe is a precious metals broker with Calgary-based New World Precious Metals.

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