Gold price hits Australian dollar record as global tensions escalate
Gold pushed through to A$3,136 per ounce on Friday morning, setting a modern record in Australian dollar terms.
But there may be more to come with JP Morgan predicting the gold price to hit US$2,175/oz in 2024.
That may well turn out to be far too pessimistic given the state of the globe right now.
But, at today’s exchange rate, that JP Morgan figure would mean an Australian dollar price of A$3,443/oz.
Potential for further rises
Gold has been recovering from a recent pullback, stirred mainly by conflicts in the Middle East.
The $A needle hit A$3,086/oz in Wednesday trading in New York and needed only a nudge to push it up further the following session. As of midday Friday the gold price inched higher trading at A$3,133/oz.
The $A needle hit A$3,133/oz in Friday midday trade.
In greenback terms, gold has added US$162/oz over the past fortnight.
Now Islamic militants based in Lebanon are getting into frame of the conflict.
And, hovering above the Middle East, is the daunting prospect of Iran getting involved, a move that would be catastrophic both for Israel and the oil price.
Fears are growing, too, that the Middle East crisis — the worst since the Yom Kippur war 50 years ago — might encourage China to see this as an opportunity to strike at Taiwan while two whole US carrier groups are preoccupied in the eastern Mediterranean Sea.
Global debt staggering
Brent crude is at US$92 per barrel, which is going to give us further inflationary shocks, anyway.
That means more interest rate rises at a time when global debt has reached staggering proportions.
While the American government’s debt now at US$33 trillion gets frequent mentions, an even more frightening statistic comes from the International Institute of Finance.
It calculates that global debt (government, corporate and private) now stands at US$397 trillion.
That is equivalent to 336% of global GDP.
When faced with that statistic, clearly gold is heads above paper money in appeal.
In US$ terms, gold still well below its peak
Gold has traded above US$2,000/oz this year, and now stands at US$1,978.
Bit, historically, it is much further from its peak in real terms.
In 1980 the yellow metal reached US$850/oz, thanks to the oil price shocks and consequent inflation.
But look what that would mean in 2023 adjusted for 33 years of inflation — a staggering US$3,175/oz (or A$5,027/oz at today’s exchange rate).
Fed losing its control of gold price
The Federal Reserve and the other main Western central banks are losing their ability to control the gold price.
The days when traders and bankers in London and New York could pretty well press various buttons to put a lid on gold prices are going.
This is because the US and the United Kingdom are now declining in terms of gold trading in terms of the physical end.
In 2023 the central banks buying gold in are (apart from Poland) not located in the West.
This year the big players have included China, Singapore, Turkey, Uzbekistan, India. And Saudi Arabia
Thirty years ago, Asian demand made up 45% of world gold transactions.
Now Asian demand is approaching 60%, with China and India in the driving seats, accounting as they do for about 50% of demand.
Gold producers well positioned
Australia’s gold producers, even with rising fuel and labour costs, should be significant beneficiaries of the bullish gold price.
Signals coming out of the Reserve Bank of Australia, and now Treasurer Jim Chalmers, suggest more inflation is coming.
The RBA’s next board meeting is just over two weeks away, and another interest rate increase is on the cards.
That may stabilise the Australian dollar for a while.
But gold is now being de-linked to the bond price and any spreading of the Middle East crisis, or one involving Taiwan, could mean a larger flight to safety to gold as the place to be.