Investors could see a ‘generational' opportunity for gains as market conditions are potentially set to more than triple the gold price, Brien Lundin, editor and publisher of Gold Newsletter told delegates at the 2024 Rule Symposium in Boca Raton in Florida USA.

Lundin said technical analysis, including the contraction of Bollinger bands, indicates lower volatility in gold, which could presage a breakout. Bollinger Bands are a technical analysis tool used to determine where prices are high and low relative to each other.

"A long-term, monetarily based gold bull market is in progress. US$1040/oz is the bottom for this cycle, and if it has the seven times, or eight times price growth we have seen in other cycles, gold is going to $7000-8000/oz," said Lundin.

Policies of quantitative easing and the printing of US dollars have fuelled inflation in recent years, which is eroding its purchasing power and increasing the cost of living. Lundin said the fall in the purchasing power of the US dollar echoes that of the denarius, the currency of the Roman empire, more than 2000 years ago, which lost 90% of its value in about 200 years.

"The US dollar has done that since 1960s. What causes declines in currency purchasing power is spending and debt creation. We have entered the end game of a four-decade process of ever-easier money. Through this process markets have become addicted to ever-easier money and debt," said Lundin.

The availability of ever-easier money has seen the US debt level increase to about $35 trillion, which means the US debt-to-GDP ratio is now 122.3%, up from 57.5% in 2000. While significant in its own right, of greater concern is the $1 trillion in annual interest the government has to pay to service that debt. "This is unsustainable. The US Federal Reserve is running into a brickwall as it cannot raise interest rates anymore, and it cannot leave rates at these levels, because of the interest expense. Federal interest expense has gone hyperbolic," said Lundin.

Investors have been expecting the US Federal Reserve to cut interest rates throughout this year, but it has yet to do so, having stayed its hand due to a "surprisingly robust" US economy and inflation being "surprisingly sticky".

Even when it does cut interest rates, Lundin believes it cannot cut them fast enough to escape the interest payments poison pill. "If the Fed cuts 150 basis points between now and next year, interest expense will naturally reset at $1.2 trillion per year. If the Fed does nothing, this goes to $1.7 trillion per year," he said.

High interest rates typically strengthen the US dollar as investors can obtain an attractive yield from holding US treasuries. With treasuries representing an alternative safe haven investment, this normally weakens the gold price. However, gold has been strong concurrently with the US dollar.

"Gold should trade counter to treasury yields, but they are rising in unison. Gold has gained more than $700/oz, a 40% gain, during times of headwinds. Gold and dollar strengthening is weird and something we have not seen for many years," said Lundin.

Central banks

Asian investors and central banks have bought gold in record volumes in recent years, while Western investors have largely been absent from gold buying. Joe Cavatoni, market strategist at World Gold Council says this is because Western investors have had investment opportunities that Asian investors have not had.

"Central banks have looked at their dollar reserves and dollar-based assets, and the risk profile of those assets and their homegrown concerns around inflation and political risk and realised they need a safe asset. They are not dumping the dollar for the Brazilian alternative currency that has been talked about. They are looking at their investment needs and realised that liquidity diversification benefits are actually what they're looking to add while lowering their exposure to credit-related events and performance-related events that come from dollar-based assets," he told Mining Journal.

When the US Federal Reserve does start paring interest rates, it could herald the return of Western investors to the yellow metal.

"Cutting interest rates will bring Western investors back, and they will say it's time to allocate because there will then be a clear trajectory of what will play out in terms of rates, so the cost of carry will be clearer and easier for an investor to rationalise," said Cavatoni.

"The only thing missing to punch the gold price higher are falling treasury yields, which I think we are going to get," said Dana Samuelson, president and founder of American Gold Exchange.

Cavatoni said there may be "unknown unknowns" that could also play out, such as shocks to the system. "The political landscape in the European Union is looking quite wobbly. The European Central Bank had a rate cut of 25 basis points, and the European ETFs, the worst performing ETF segment over the last three years, has seen $2 billion in inflows in the last two months. That's the first big move. With rate cuts on the way, the consequence is that opportunity costs are moving back to favour gold," said Cavatoni.

Regardless of how high the gold price may go, Cavatoni said it looks like a very strong floor is now in place. "Gold's record so far in 2024 is proving that. The average gold price in the March quarter was a record $2017/oz, which increased to a record $2338/oz in the June quarter," he said.

Real asset big bang

Global macroeconomist Dr Naomi Prins said a "real asset big bang" is on its way as the geopolitical landscape changes and impacts from this are felt on supply chains. This, in turn, is catalysing new thinking in the US to have control of its natural resource supply, which is transforming how it thinks of supply chains.

"One aspect of this is building more secure and sustainable energy generation and distribution systems," she said, with uranium, copper and silver likely to benefit.

Prins spoke about how the political wheels in Washington work and how they were starting to turn to support natural resources. For uranium, for example, she said the Nuclear Fuels Security Act was attached to the National Defense Authorization Act as "Congress looks to push forward the thing that is popular in the easiest manner. It was added to the Defense Act, which we know will get passed," she said.

Prins said the language of those domestic policy acts is now being used for critical minerals and rare earth elements legislation, and for infrastructure funding, which is likely to benefit the development of domestic supply chains for industrial metals such as copper and aluminium. 

"It will cost multiple trillions to bring US infrastructure up to 21st century levels. There will be a call on domestic natural resource and supply chains to fill those needs. … The [momentum for this] is building behind the scenes," said Prins.