Gold Price in the Coming Months: Will These Three Factors Cause Gold to Explode?

Currently, there are some interesting global developments that will have a positive impact on the gold price in the coming months of 2023 and 2024.

Three trends are in particular focus and could catapult the gold price to new highs.

During my visit to Singapore, I met Gregor Gregensen, the founder of Silver Bullion, and talked to him about exactly these 3 factors.

Factor 1:
The current banking crisis and the impending collapse of more banks.

In the USA, the first banks have collapsed in recent weeks. Credit Suisse was also the first European financial institution to be affected by the crisis.

These events are probably the first symptoms of a long-term problem. The problem lies in the extreme indebtedness of states and institutions that has been accumulated for decades. Contributing to the current crisis is the unsustainable financial system of central banks.

At best, banks hold only about 10% of all customer deposits as cash. The rest is invested in government bonds and other assets. This has some risks that could fuel the gold price in the coming months.

Low interest rates are now taking revenge

In recent years, banks have been buying bonds at a very low interest rate. This is not a problem until interest rates rise. In fact, there is a relationship between the interest rate and the price of a government bond.

If interest rates fall, the value of a bond rises. If interest rates rise, as they are currently, the resale price falls. This does not seem to be a problem at first, as long as the bank does not need additional liquidity.

The situation is different when financial institutions need additional liquidity, for example, because a large proportion of customers' deposits are to be paid out. 

In order to serve all payout requests, the financial institution has to sell the bonds and other assets at a significantly low price. This loss impacts the balance sheet, further reducing confidence in the financial institution.

This causes a loss of confidence among customers. The result can be a bank run, i.e. the withdrawal of substantial balances.

The bank collapses in a very short time. The USA and Switzerland have rescued the affected banks with taxpayers' money and claim that these are isolated cases. However, this is likely to be more of a bitter distraction pill.

Virtually all banks have these low-interest bonds in their portfolios. Insurers also frequently invest in these supposedly safe securities (because they are usually forced to do so by lawmakers).

In addition to government bonds, there are also other low-interest bonds that were sold en masse, especially during the Corona period.

We certainly don't have to explain to you what impact a further collapse of potentially more banks will have on the gold price in the coming months.

The security systems are reaching their limits

The politicians' claim that the problem only affects a few banks is therefore easy to refute.

Now you might think: Okay, but we have generous deposit insurance. However, it is not that simple.

Kraken was a major customer of the bankrupt Signature Bank. The crypto exchange had deposited billions of dollars there for its customers.

No deposit insurance secures these sums. This shows how chain reactions can occur when just one domino falls.

If even more banks collapse, then the protection systems also reach their limits. In the end, only the state can come up or the banks are simply left to go bankrupt and the customers will go away empty-handed. 

Who owns physical gold & silver will be exempt from such a problem. 

When there is too much money in the system

The banking system is extremely fragile and is propped up by the creation of more and more money.

However, this can lead to an imbalance between liquidity and supply of goods. If there is a lot of money, but no goods are offered for it, inflation occurs. The money is devalued.

Inflation also occurs when the money supply remains the same but the supply of goods decreases. This has been nicely observed in the Corona period.

Part of the inflation occurred because China failed as the world's workbench for about two years. In addition, the velocity of money in circulation has increased again since the end of the pandemic.

This problem could be exacerbated in the future by an economic war between the U.S. and China.

The supply could decrease further, which would drive up inflation even more. The losers are all those who deposit their money in a bank account or in a safe.

And the more investors realize this in the future, the more positive this will probably be for the gold price in the coming months. After all, more and more investors will seek protection in the yellow metal.

There are no safe banks

Which bank will collapse next is not crucial for your decisions.

The important thing is not to become completely dependent on this system. Against the loss of value of central bank money you have to diversify your assets.

The biggest problem in the future will be that the global trade created in the last 30 years will be pushed back.

The world is polarizing. The result will be trade wars, which will reduce the supply of goods and thus accelerate inflation, i.e. demonetization.

About 15% of this should be invested in physical gold and silver, precious metals. Gold is the ideal insurance against the risks of demonetization.

FIAT money is a promise by the government to guarantee a certain nominal value. Paper money has no intrinsic value. It is different with gold, which must be considered a currency in its own right.

While the value of paper money is based on trust to institutions, gold has its own value. Gold is not political. It cannot be created out of thin air and is not controlled by a state.

Factor 2:
Central banks secretly buy gold and you should not do it

It is interesting that citizens are gladly advised not to buy gold. It offers no interest and does not yield any returns. Interestingly, this apparently does not bother central banks.

Since 2008, gold holdings at central banks have increased by almost 20%. The World Gold Concil evaluated corresponding inventory data. According to this, the global stock was 30,002 tons in 2008. In 2022, it was 35,495 tons.

While there was a continuous decline in the stock before the financial crisis, the amount of gold in central bank vaults has been rising again since then.

Gold has thus become the third reserve currency at central banks after the U.S. dollar and the euro. Central banks seem to be well aware of the value of gold just discussed.

The gold price will certainly be happy about this in the coming months.

Greed for profit often leads to wrong advice

The fact that the citizen is recommended not to buy gold has above all profit reasons.

Insurance companies and other forms of investment achieve high margins with contracts. 

According to Hermann Weinmann, an insurance expert from Ludwigshafen, German life insurance companies have achieved gross surplus margins of almost 30% in some cases in the past.

With the sale of gold, around one percent can be achieved. The reason is the high transparency of the yellow metal. Anyone can check what price gold is trading for on the international market.

For insurance customers, there is another disadvantage. Since insurers have to generate a return, they invest customers' premiums.

This is often done by buying government bonds. Insurance companies are even forced to do this by the state through legislation.

Gold has no counterparty risk.

We have shed light on the risk of such transactions above. By the way, it is unlikely that interest rates will fall again soon.

This further increases the risk of loss for the insured. There is a real counterparty risk here that is not present with gold.

This also includes the fact that insurance companies only generate low value growth for the saver. This has a particular impact in times of high inflation.

Let's assume that your insurance company guarantees you 2% interest. Then 100 euros will become 102 after one year.

The problem is that a good that cost 100 euros a year ago now costs 110 euros with 10 % inflation. What matters is not the nominal value, but what you can buy with it.

Central bank money loses value in real terms every year. In order to protect your assets, you have to make an investment that, in the long run, will generate a return above inflation.

Can gold be without interest? The past shows that the precious metal is a reliable store of value.

The U.S. dollar has lost about 3.4% of its value annually since 1970. Gold, on the other hand, gained 7.8% per year against the U.S. dollar.

While central bank money loses value every year, gold increases. That's why the yellow metal is so attractive. Gold is an ideal building block to secure your assets.

Kaufkraft Abnahme illustriert durch Zinseszinskurve

What will $100 still be worth in 50 years?

Recently, the Russian central bank, among others, significantly increased its stocks. The aim was to become less dependent on the US dollar. The plan worked, as we can see since 2022.

Expanding the money supply is not a big problem as long as there is a certain balance with the supply of goods.

The decisive factor here is people's confidence in the central bank and in policymakers. If it is disturbed, the value of the currency falls and inflation increases.

The desire arises to rather spend the money today before it becomes worth even less tomorrow.

Demand increases, supply cannot keep pace. Inflation continues to rise. This is how the hyperinflation between 1918 and 1922 came about.

Confidence in the currency is lost and there is a downward spiral that is almost impossible to stop. The development proceeds at a rapid pace.

Therefore, it is important that you create one or preferably several bank-independent reserve assets now and thus become your own bank, true to my Flag Theory 3.0.

The important thing is to act now. If many people start to lose confidence in FIAT currencies during a crisis, there will not only be shortages in the supply of gold.

The price of the precious metal will quickly rise sharply. And I think we may well see moderate growth in the price of gold in the coming months of 2023 and 2024!

When exactly the paper money system collapses is not predictable. And it should not concern you also around it!

The run of the central banks on the yellow metal shows however that they consider such a scenario even possible. 

The solution is only physical precious metals. ETFs and other contracts promise you only the equivalent of a certain amount of gold or silver.

Mostly they are not backed by the corresponding precious metals. In a financial crisis, these securities are very likely to be worthless.

Factor Three:
Threat of trade wars, de-dollarization & potential geopolitical dislocations.

For some years now, developments have been observed in which countries no longer want to unilaterally rely on the U.S. dollar as their reserve currency.

Increasingly, the euro and the Chinese yuan are playing a role in the market. The Russians sell their raw materials in rubles.

The goal is to free themselves from the superiority of the United States. The United States is using the dollar more and more to push through political goals. The currency has become an instrument of war. 

The observed polarization of the world could expand in the coming years and thus also have a positive impact on the price of gold in the coming months. 

One particularly risky area is the relationship between the U.S. and China. The U.S. increasingly wants to cut off the People's Republic from the use of Western technology.

The Chinese' sharpest sword is currency. As a globally important supplier, they could prohibit paying for Chinese goods in dollars.

It may then be necessary to pay in euros, yuan or another currency. Gold, as a means of payment independent of states, could also play an important role.

In such a case, the U.S. dollar would lose enormous value due to a significant drop in demand.

Gold would increase significantly in value due to higher demand. The increase in value against the greenback would be particularly strong.

Trade wars between the USA and China can have devastating consequences for the financial market.

Fragmentation could occur, which would make global trade much more difficult. If you do not want to expose yourself to this incalculable risk, invest in gold.

You can own the precious metal directly. You have no counterparty risk. You become your own bank. Of course, this also applies to other valuables.

However, gold can usually be made liquid faster than other assets. Gold is an independent currency that is not dependent on central bank money.

Why is Singapore a good place to store gold safely?

To protect assets from crises in your own country, it is advisable to store part of your assets abroad.

Many prefer Switzerland for this purpose. However, it makes sense to diversify your assets even more.

The Swiss Confederation is located in the middle of Europe. If a crisis breaks out on the continent, it is unlikely that it would not affect Switzerland.

The country's most important trading partner is the EU, which makes numerous demands and also has them implemented. Swiss banking secrecy, for example, has been largely undermined.

Singapore is a jurisdiction that is neutral. The city-state is prosperous and not dependent on anyone. Its cornerstones include a very strong military, which provides for efficient defense.

Singapore's wealth is based on its reliability to investors from all over the world. The country has no raw materials or other important economic assets.

Prosperity there is based, among other things, on the trust of the people who deposit their assets here and the city-state's strong rule of law.

The U.S. has already banned private ownership of gold once (1933) and confiscated the precious metal at a low price. 

If, in the course of a crisis, confidence in the dollar is lost, a new currency would have to be created. Gold has this confidence.

So it is likely that the new currency will be fully or partially backed by gold.

But where will all this precious metal come from? The USA or the EU (and thus also Germany) could collect the gold from private individuals.

Of course, states could also demand their citizens' gold from Singapore. However, they would have to turn to courts from the city-state, where expropriation of assets is not possible.

It is unlikely that Singapore will change its laws; after all, they are the foundation of today's prosperity.

Silver Bullion as a precious metals partner has another important advantage. The company is based exclusively in Singapore and offers you an option to additionally insure yourself against a nationalization event.

This means that it must adhere exclusively to the law in the city-state. Other jurisdictions have no possibility to intervene on the business policy.

Learn more about the safe storage of gold in Singapore in my detailed article.