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Address 500 Centre Street SE 27th Floor Calgary AB, T2G 1A6
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Milan Cacic

April 14, 2023

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GOLD. PEOPLE LOVE TO HATE IT!

Every time we discuss gold the comments pour in. If we make a bullish commentary, we receive some not so constructive responses and if we make a bearish comment we usually get a lesson on why the current monetary system is in a death spiral. Either way it creates for an interesting read.

 

Regardless of your view, gold is currently acting very good. As of yesterday, gold had reached a new all-time high. Let's look at why gold is going up and what would make it continue to increase.

 

What makes the price of gold go up?

 

A decrease in production

  • Gold production is currently at the same production level it was in 2016. Gold production in 2020 and 2021 was actually down 300 metric tons to 3,000 metric tons from the production level in 2018-2019 that was 3,300 metric tons.

 

Central banks purchasing gold

  • Central banks purchased 400 metric tons of gold in the third quarter 2022. This is the highest amount since the year 2000.

 

A weakening US dollar

  • The US dollar index peaked in October 2022 at 113 and has dropped to 101 today. From a historical point of view, US dollar rarely gets above 115 and rarely gets below 75. Based on those metrics and history the US dollar is likely to drop more from this point.

 

Lower interest rates [usually caused from a recession]

  • The chart below is very interesting on many levels. As you can see the Federal Reserve is telling us that they will raise rates one more time and then keep them flat for the foreseeable future however, the market is telling us that the rate hikes are not only done but rate cuts are coming soon. Either way, lower interest rates are bullish for gold [and other asset classes which will talk about next week] which should bode well for the price of gold in the short-term.

 

Graph

 

When we put all these pieces together it's hard not to see gold go higher in the short term. Having said that, gold has been a very difficult asset class to own for the long term. The performance has not been great. We view gold as a trade which means it's unlikely we will hold it for more than 18 months.

 

I've also included a piece from our CIBC economics team entitled "Pay Watch".

 

As always, if you have any questions please feel free to give us a call anytime.

 

Have a great weekend.

 

Milan

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CIBC Private Wealth” consists of services provided by CIBC and certain of its subsidiaries through CIBC Private Banking; CIBC Private Investment Counsel, a division of CIBC Asset Management Inc. (“CAM”); CIBC Trust Corporation; and CIBC Wood Gundy, a division of CIBC World Markets Inc. (“WMI”). CIBC Private Banking provides solutions from CIBC Investor Services Inc. (“ISI”), CAM and credit products. CIBC Private Wealth services are available to qualified individuals. Insurance services are only available through CIBC Wood Gundy Financial Services Inc. In Quebec, insurance services are only available through CIBC Wood Gundy Financial Services (Quebec) Inc.


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