Three Reasons Gold Has Been Going Higher

Dear Reader,

This is Dylan Jovine with Behind the Markets.

Happy Wednesday.

Today is Wednesday, July 8th.

Today I want to talk about gold.

A bunch of new price targets just came out from Wall Street banks, and I want to walk you through them.

Gold is sitting right around $4,175 an ounce right now.

Goldman Sachs has it at $4,900 by year end — revised down from $5,400, but still firmly bullish.

JP Morgan has it at $6,000 an ounce.

UBS has it at $5,200.

Morgan Stanley has it at $5,200.

Bank of America has it at $4,800.

So you have every major Wall Street bank raising their gold price targets — even as gold has pulled back from around $5,000 to $4,000 recently.

Which begs the question: what's actually going on?

Three Reasons Gold Has Been Going Higher

We've talked about this many times here, and the story hasn't changed.

There are three structural drivers behind gold's rise.

The first is central bank buying.

Foreign central banks have been diversifying away from the US dollar in a very big way.

Take China as an example.

They have a surplus with us that's bigger than ever — something like $600 billion a year.

They used to take that money and park it in US Treasury bonds, which pushed interest rates down and propped up the dollar.

They've stopped doing that.

Now they're buying gold with it instead.

As long as they run a surplus with us, they're going to keep buying gold.

Period.

The second reason is the debasement trade.

Why would any central banker with a brain hold dollars when dollars are going down 3% to 5% a year in value?

Trump's first term added $7.4 trillion in debt.

Biden added $7.2 trillion.

This term looks like it's tracking toward $8 trillion.

When you keep spending more than you take in at that scale, the people holding your currency start looking for the exit.

Gold is the exit.

The third reason is momentum.

Fast money piles into anything going up.

Gold went from $2,000 to $5,000 and everybody and their mother got involved.

Then it pulled back to $4,000 and the momentum crowd ran for the hills.

That's what's happening right now.

What It Means Going Forward

The momentum trade may have deflated for now.

The hawkish Fed isn't helping — Kevin Warsh is signaling rates are staying tight, which disincentivizes people from dumping dollars.

But the structural reasons driving gold higher?

Those haven't gone anywhere.

A Central Bank Gold Reserve Survey found that 89% of central bankers expect their gold reserves to rise over the next 12 months.

Goldman Sachs sees central bank buying jumping from 29 tons per month to 50 tons — and potentially 60 tons — through 2026.

So ask yourself one simple question.

Do you think the US government is going to get its fiscal house in order anytime soon?

Because that's the only thing that would actually incentivize people to hold dollars again.

If the answer is no — and the math makes it hard to say yes — then gold's structural case is very much intact.

The smartest, most sophisticated money on the planet is still buying it.

Central bankers don't buy gold for fun.

They buy it because faith in the dollar is eroding at historic rates.

That's a sad thing to say.

But it's true.

Central banks are buying gold at the fastest pace in decades.

JP Morgan has a $6,000 target.

And I'd argue the biggest gains won't come from gold itself — they'll come from owning the companies sitting on gold still in the ground.

When gold reprices, those stocks don't just move. They go parabolic. Every single time.

Have a wonderful day.

I'll see you tomorrow.

“The Buck Stops Here,”