Gold is hovering near $4,400 while silver has cleared $60. Yet U.S. investors remain historically underweight in precious metals. Here’s why this price action isn’t a rally – but rather a fundamental reassessment of the price of risk…
Your News to Know rounds up the most important developments in precious metals and the broader economy. This week, we’ll discuss:
- Why are Americans astonishingly underweight on gold?
- Gold stops short of $4,400, but sentiment rises to all-time high
- Silver passes $63 as experts forecast even higher prices
Every 0.01% allocation to gold by U.S. investors would raise its price by $60
Business Insider reported on some of the finer points of a Goldman Sachs analysis that came to some interesting conclusions. First off, it seems like virtually all of gold’s recent price action is happening with minimal participation from American investors.
Gold investors will likely know that Western investment in the gold market has lagged behind the rest of the world over the past few years. These days, we’re also seeing less participation from China and India, where the normally gold-happy buyers are dealing with both a near-record-high gold price and excessive premiums.
Isn’t it surprising to see gold nearing all-time highs while Western investors sit on the sidelines?
It speaks to a few things. First, just how much gold bullion the institutional sector is buying. Central banks are still buying at near-record volumes for the fourth consecutive year. Recently, Bloomberg tells us some stablecoin issuers including Tether have diversified their reserves with gold bullion.
Second, and more importantly, today’s gold price can be seen as a reassessment of the value of the U.S. dollar. This is what I mean when I talked about The Great Gold Repricing. It’s as though the world suddenly realized just how much risk was embedded in most financial assets, and repriced counterparty-risk-free gold bullion accordingly. I don’t believe this is a rally – I believe it is a realignment.
Whether you call it a rally or not, most U.S. investors are sitting on the sidelines. As someone who’s worked in this sector for well over a decade, I find the typical American investor’s exposure to gold sadly lacking. Gold-backed financial products still haven’t passed their 2012 peak. This makes some sense since they rarely buy when prices are rising.
What really doesn’t make sense is private gold ownership. Exposure to gold in the $112 trillion U.S. investment landscapes is an absolutely miniscule 0.17%. Just 17 cents out of every $100, on average.
Our nation’s private investment in gold coins and bars are just 11-15 tons a year.
In other words, all American investors together bought less physical gold than a single stablecoin issuer did this year.
When I discuss the levels of financial risk the typical American family takes on without realizing it, this is what I mean. A 0.17% allocation to a safe haven asset simply isn’t enough to make a difference!
The analysts at Goldman Sachs are catching on to my line of reasoning. It’s these very numbers that led their report to forecast $4,900 gold in 2026. They went on to calculate that every 0.01% increase in overall gold allocation will translate to a $60 higher gold price (given current levels).
I believe it’s only a matter of time before this imbalance gets corrected. But with an annual physical deficit of over 1,000 tons, what will happen to the price of gold when American investors wake up and begin diversifying?
Trust me, you’ll want to already own gold when it happens.
Despite an incredible year, gold is still beating expectations
Mainstream outlets such as Forbes are telling us that gold’s surge is here to stay, as the metal is becoming portfolio core.
Last week gold made a bold run for $4,400, but stopped short and has been hovering in the $4,350 range since. Times are good for gold investors. But when aren’t they?
The Federal Reserve has surrendered the fight against inflation, not only lowering rates but returning to quantitative easing (QE) just two weeks after they ended their quantitative tightening (QT) program. That’s on top of slashing rates 175 bps over the last 15 months, despite a combination of persistently high inflation and a historically low unemployment rate. Why? Consider the federal government’s $38.4 trillion debt mountain (and the cost to refinance that debt) – there’s your answer.
Fed Chair Jerome Powell has no options. Rates need to come down, and gold is clearly aware of that. That’s what we are seeing now. $4,255 and $4,275 have been listed as major resistance levels, but gold barreled through them like it’s nothing.
Now, the analysts are still being tempered about gold’s upside. We haven’t seen a swathe of forecasts being updated over $5,000 over the past week. Nobody’s addressing what it means for the U.S. dollar if gold doesn’t drop below $3,500 anymore, which many doubt it will.
And there’s a conspicuous absence of mentions how this near-tripling of gold price is happening just as dedollarization is picking up momentum…
We’ll see if these things are addressed over the coming month. Gold made one of its biggest bids in this run on January 1 of 2024, when an express covering and closing of short position pushed the price up, never to return. Last year-end, we were told how President Trump getting elected over Harris would be bad for gold.
So it’s understandable to get jitters as gold touches a new all-time high and seemingly has something in store this December. (Or has it already achieved that?)
Silver passes the all-important $60 mark, and forecasts of $100 are going mainstream
It took $60 silver for some common sense to return to the markets, as seen on Kitco.
There, I’m glad to see Michele Schneider, Chief Market Strategist at MarketGauge, go over a lot of the things I’ve been saying.
Having just passed $63, Schneider says the metal has plenty of room to run in 2026.
Actually, she’s surprised it isn’t higher already, as it would make sense from a gold/silver ratio standpoint as well as in regards to silver’s price compared to other commodities.
Frequent readers will know that this is what I’ve been highlighting amid all the noise about profit-taking, surprise one-time London squeeze and what not.
Now, we are actually in a funny spot because I said nothing before $50 silver is relevant when it was around $35.
When it was getting up to $48, I said any bounce will be artificial, and that increments of $10 are what needs to be monitored.
I said that so long as it’s under $50 or even $60, we are seeing obvious price suppression and that, until the levels are cleared, excitement can be curbed.
But I’ve mostly, though not fully, stretched out my forecast to the $60-70 level.
I said that if silver can clear $60, it might run off because psychological levels are telling people the suppressors have lost control.
However, I didn’t really map it that carefully after $70 because it becomes a bit of anyone’s guess.
It could go to $80, it could still bounce back down as it’s still “only” $63, or it could go towards $100 or even $200 before anyone realizes.
The thing to keep in mind is that a run towards $100-$200 is what makes sense fundamentally, due to factors Schneider has pointed out and many others.
So even $80 silver is low from most perspectives, as it will probably be accompanied by a big run in gold.
Here is where we must keep in front view that gold is still around $4,300, which it has already seesawed in for a while.
But when it last did, silver was pretty far from $63.
So silver merely used gold’s movement to follow with greater upside, as it has done through most of history.
However, as we are seeing now, it doesn’t actually need the gold price to leap to unseen levels.
The scenario which I believe to be a nightmare for silver price suppressors is panning out. People are seeing silver go from $40 to $50 to $60 while gold stays $4,300.
Now, everyone hopefully knows the action is happening for reasons other than silver being “dragged up”.
Elsewhere on Kitco, Incrementum AG’s Ronald Stoeferle said the path to $100 silver is open. Those who have been following Stoeferle probably associate him with accurate and tempered forecasts. He’s the one who felt worried about gold being high around $3,500, saying it’s high around $2,200 and fulfills its role there quite well.
But he seems to have totally switched gear and is now saying gold has entered a second phase of its bullish run. So all of the last two years were just the first phase? Regardless, when Stoeferle has a lofty precious metals forecast, I’ve learned that means that the metal in question is one to watch closely.
