Gold is barreling past $3,200 with forecasts of $4,500 on the horizon. But is it really tariffs driving the surge? Or something much bigger? From Basel III to global bullion shortages, we break down what’s really behind gold’s unstoppable climb…
By Peter Reagan
Your News to Know rounds up the most important stories about precious metals and the overall economy. This week, we’ll cover:
- Gold approaches a new all-time high of $3,300 (forecasts up to $4,500 abound)
- It’s time to remember the Basel III agreement…
- …especially in light of recent gold shortages in the West
- Globally, gold offers both safety and sound money (but at a premium)
Gold jumps with force above $3,200 and targets $3,300 again
It was just last week that we covered StoneX remarking how gold is a $4,500 question if you ask JPMorgan. We said that they are far from the only big institution making these calls, and more have sprung up in the meantime.
The original $3,500 question is almost starting to seem inconsequential as gold posted a massive gain to barrel above $3,200 and target $3,300 next. (Update: on Wednesday the 16th, the price of gold broke $3,300 for the first time in history.)
$3,500 seems like a given, leaving us open to the same question we’ve been asking for years: what’s next?
As always, we are being told that this monumental and historic move is due to some odd reason, in this case Trump tariffs. (Loyal readers will remember the claim, when Trump won the election, that gold’s immediate drop was a result of that.)
How come, we asked, when Trump was always in favor of a weaker U.S. dollar and pro-tariffs? There was no answer, and there is still none.
Remember, this is the exact territory we had back in 2016. Trump’s trade policy was always clear-cut.
The President, then and now, said that China and other trade partners are gaining an unfair trade advantage and directly or indirectly sabotaging the U.S. economy.
So why didn’t gold jump in response back then? It was doing okay, having done a minor bull run between 2016 and 2019 that only really started to heat up in 2019. It was mostly in recovery phase from the 2011 fall still, although in a gaining bull market nonetheless.
Gold was doing well in 2016. But it wasn’t doing $3,000 well, or $3,300 well, or $4,000 well let alone $4,500 well.
The mainstream continues to ignore gold’s exceptional fundamentals and will undoubtedly continue to attribute whatever gains happen to whatever happened last week.
We’re getting some acknowledgement that the dollar is weak, but even that is being sold through a tariff prism.
No tell that the greenback’s strength was smoke this entire time, and that it will remain structurally weak even if the tariffs are off the table completely.
As far as forecasts go, we have Goldman Sachs saying that gold could hit $4,500 as early as this year.
UBS is keeping it moderate by only raising its year-end target to $3,500, while reiterating that gold will likely extend its run throughout 2026.
As yet another reminder, the peak was initially expected to happen this year. Those who have been paying attention shouldn’t be the slightest bit surprised to hear that gold is hitting $3,300, $3,500 and similar figures.
And, unless they’re ours or belonging to experienced gold analysts who tell it like it is, gold headlines should mostly be ignored. They have, and continue to, attempt to paint a picture of gold shooting up for unclear reasons for the better part of two years.
It seems that most will refuse to acknowledge the fundamentals no matter what, so all that is left to do is pile up and watch. It’s what the central banks are doing.
Nobody seems to remember the Basel III agreement
As promised, we will attempt to give a brief overview of the Basel III agreement, the recent COMEX-London Bullion Market-Bank of England fiasco, and why something big might be overlooked.
Those who have been with us in 2021 know that we covered the Basel III agreement extensively. We treated it as a big deal, and weren’t the only ones to do so. In case you haven’t been keeping up, or would like a footnote, the agreement can be summarized pretty briefly.
It’s meant to almost completely overhaul gold trading by requiring that banks have appropriate physical gold bullion backing for their trades. Only physical gold in possession is defined as a “riskless” Tier 1 safe asset. Futures contracts, promises to deliver and claims on someone else’s gold no longer count as top-shelf, high-quality capital.
We’ve summarized it in a couple sentences, yet digging around often makes it seem like the issue is far more complex. So much so you feel moved to cheer against the Basel III agreement. If only because you’re tired of reading about it. (Look, even the World Gold Council has come out against full implementation of Basel III requirements!) Are we supposed to pity the poor banks and their profitable trading in gold that doesn’t exist?
Considering we’re some four years removed from the Basel III agreement, so it might seem strange to suggest it as a driving force behind gold’s current run. But four years ago, many thought that gold’s price could explode due to this change. Four years ago, the price targets being cited were dismissed as “the usual gold bug nonsense.” Hand-waving about $3,300 gold? $4,300? Whatever…
Today, though? Those forecasts don’t look outrageous at all. Especially considering the same big banks who stand to lose out due to Basel III are actually making those gold price forecasts!
Then there’s the recent gold bullion squeeze. It’s been framed as a COMEX affair (which isn’t a bank itself, but where banks warehouse their gold). A huge quantity of gold came to the U.S. in the first quarter in an attempt to front-run tariffs, we’re told. Then gold bullion was specifically exempted from tariffs.
Regardless, the global bullion migration brings up an important point. When the Basel III was being rolled out, the UK was highlighted for its daily trade of $200 billion in “unallocated” gold bullion. Here’s the important point: “unallocated” gold bullion can be sold to multiple speculators at the same time! The ratio of contracts to physical gold can be as high as 400:1, which works just fine as long as everyone settles in cash instead of physical delivery. During periods of financial stress, more traders insist on actual gold instead of cash, and boom! You get a bank run dynamic, with 400 people demanding physical delivery of the same gold…
In other words, liquidity issues have always been a concern. The current gold squeeze is supposedly happening because the Bank of England has a month-long queue for gold withdrawals. Dave Ramsden, deputy governor at the central bank, said:
“Gold is a physical asset, so there are real logistical constraints and security constraints. Getting into the (central) bank for me this morning was a bit trickier because there was a lorry in the bullion yard… And the stuff is also quite heavy.”
Is it just me who finds it hilarious that one of the world’s biggest bullion vaults isn’t equipped to actually deliver gold? Their 14-day settlement window has suddenly at least doubled because they can’t park a truck? Meanwhile, the Bank of England’s vaults are primary storage for most, if not all, of the nation’s banks, who trade gold as described in the Basel III agreement.
The connection is practically jumping out, with the only question being why the delay in this squeeze manifesting in the gold price. Honestly, it could be any number of things. Physical gold bullion is disconnected from the commodities market anyway.
If this is all true, COMEX is kind of being thrown under the bus, along with our President, to give everyone a plausible explanation for a massive bullion squeeze and a surge in price. Admitting that the Basel III agreement has come for a reckoning is not a concession mainstream pundits are likely to make.
But disconnecting these two events seems almost impossible by this point.
What does that mean for the future? Well, it’s anyone’s guess. It could mean good things for gold, where excessive leveraging and shorting is greatly diminished and physical backing is demanded.
Or, those with a vested interest in avoiding this could pressure gold’s price down just to keep the futures market liquid, to dissuade punters from insisting on physical delivery?
The deeper you look into the Basel III agreement, the more you’ll notice how it seems to almost forecast precisely this scenario. It’s a matter we may have to return to multiple times, depending on how the financial media attempt to frame the gold bullion story in the months and years ahead.
One thing is certain: If you don’t buy physical gold, you don’t own gold. Full stop. Your “gold” is more likely nothing more than a claim on the possibly non-existent assets of a financial institution also claimed by 399 others, and you discover you’re just one more creditor waiting for a bankruptcy court to decide how many pennies on the dollar your “gold” is actually worth.
Russia and Iran stockpile, Turkey trades in gold, Asia deals with high premiums
In times when gold is this busy in the West, it can be easy to overlook what’s going on around the world, so let’s see if we briefly highlight some of the major events.
We’ll start straightforward, with Iran importing 100 tons of gold in one year, more specifically their own calendar year which ends on March 20.
If not for this stipulation, we would almost assuredly see another all-time high year for central bank gold buying in 2025. But we might still.
Despite heavily relying on gold for liquidity for their war effort, Russia’s gold reserves have increased to the highest level in 25 years, now amounting to 35.4% of national reserves. The global average central bank reserve allocation to gold is closer to 10%. Oh, and Russia gained a pretty penny due to that as well, more specifically $96 billion as gold’s price exploded globally. (According to reports, the Bank of Russia buys gold from domestic miners, and since Russia is the world’s #2 biggest gold mining nation, there’s plenty to buy.)
Despite a set of very harsh rules imposed on citizens and businesses designed to delay the lira’s implosion, Turks are nonetheless relying almost entirely on gold for saving when possible, with everything from U.S. dollars to cryptocurrencies to sacks full of devalued lira used for daily transactions.
And over in Asia, China and Vietnam have seen their premiums go from bad to worse.
Again, Trump’s presidency is being indirectly, or not so indirectly blamed for this, with the aforementioned sources saying that the two nations merely retaliated.
In reality, anyone can go back and see that China has not only failed to provide their citizens affordable gold, it has often failed to provide them real gold for the last several years. Sky-high premiums in China have been the norm since the start of the decade.
Vietnam, on the other hand, is a country that has recently heavily struggled with having enough gold on the premises to meet citizens’ wishes, developing various solutions to try and address this. So, unlike China’s fake gold, Vietnam at least honestly says, “We don’t have any.” Pity the unfortunate private investor in Asia!
The lessons to learn from today’s stories are clear.
- If it’s not physical gold, stored on your behalf in a precious metals depository or in your own floor safe, it’s not really gold.
- Physical gold bullion, unlike virtually every other financial asset, has weight and mass! It doesn’t fly around the world at the click of a button. Simple logistics challenges can impact the availability of physical precious metals.
- Pay attention to what global central banks, you know, the ones who print money, are doing with their reserves. Maybe you can be like Russia’s central bank and score a big return on your investment.
And finally, will someone please move the lorry out of the bullion yard, so Mr. Ramsden can get to work?
