Why Central Banks Have Been Stockpiling Gold And What’s Next For The Price | George Milling-Stanley

Why Central Banks Have Been Stockpiling Gold And What’s Next For The Price | George Milling-Stanley

with gold having made new all-time highs
this year and continuing to move up to
unprecedented levels in nominal terms
everyone’s wondering what’s next are we
going to see even new higher gains can
gold climb towards $3,000 or is this it
for the rally let’s talk about the
drivers and the outlook for the price
with our next guest George Milling
Stanley Chief gold strategist at State
Street Global advisors George has spent
decades analyzing the gold market and
he’s going to give us his Outlook today
now if you’re new to the Chanel make
sure to like And subscribe George
welcome back to the show it’s been a
while it’s uh almost a year a lot has
happened to the gold market since last
year since we were on the show together
welcome back indeed it has David thanks
for inviting me back again let’s just
start with my intro question how
sustainable is this rally up to $2,400
at one point yeah look um we’ve come
back just a little bit from that there
was obviously a little bit of profit
taking when you said an all-time high I
think that’s the kind of thing expect in
any Market um but I’m getting the sense
that we do seem to have finally
established the price solidly above the
$2,000 area which had been a barrier for
what five years or more now we we’d had
various different attempts to straddle
that that uh $2,000 level now suddenly
shooting up above
2400 um and seeming pretty solid above
the $2,300 area I think that you know um
it looks to me like we’ve established a
new floor this this is always the way
overhead resistance very quickly becomes
downside support once you’ve actually
breached it and if you think about it
historically there’s an awful lot of
things going on that have tended to be
favorable for gold throughout the the 50
some years that I’ve been looking at it
um the macroeconomic environment I think
is favorable we still don’t know whether
the FED is going to keep rates high
enough to push us into recession or
whether they’re going to be able to
achieve a a soft Landing or there’s even
some talk that maybe a no Landing is is
the logical place to go and that the
econom is just going to keep booming um
inflation remains sticky uh at at way
too higher level for the FED to be
comfortable and the whole geopolitical
environment is increasingly threatening
um especially with a an ugly developing
presidential election in this country so
uh all of those things together I think
that we have a recipe for uh um for for
a decent performance as far as the price
is concerned that’s what history
suggests to me at any rate David yes uh
before we talk about the fundamentals of
gold I want to learn more about the
technicals do you know or are you aware
of Traders putting um sell limits at a
certain level um not at this point no I
think that um what I was saying that you
know that finally beating that $2,000
barrier for the best part of 10 years
now anytime gold got up close to that
$2,000 level that was a level for the
speculators to sell not the long-term
strategic asset allocators I think
they’ve been with us all along and they
continue to grow but the speculative
elements hedge funds um commodity
trading advisors day Traders are one one
kind or another 2000 was the level to
sell I think that we finally managed to
get beyond that I don’t know what levels
they’re going to be looking at in future
logically having spent just a brief
period of time uh above that $2400 level
that may well become a selling point for
some people but I don’t think it’s it’s
certainly hasn’t had time to establish
itself in the way that that $2,000
barrier had so I’m not aware of of um
particular targets that anybody has the
one thing I do notice is that all of the
Wall Street Banks seem to be raising
their targets for gold prices during the
year whether you look at Goldman Sachs
or City Bank or UBS um a whole raft of
people have raised their targets for the
gold price and I find that very
encouraging I have to say let’s discuss
the drivers of this rally now I’ve heard
different theories and and explanations
one that is prevalent is uh an
accumulation of gold purchases by
central banks over the last year now
much of this data was collected in Q4
2023 so I wonder if you think that has
had any impact um whether or not they’re
continuing to buy gold and whether or
not ultimately that is the reason for
the rally let let me try to put it in a
slightly broader context David um
Central Bankers primarily in the
emerging world have been net buyers of
gold for their official reserves or this
is now the 15th year that they’ve been
doing this so this is not something that
happened a year ago not something that
happened overnight this is a very
long-term very wellestablished Trend
with Central Bankers in the Emerging
Markets um selling US dollar debt in
many cases where they have too much in
their official reserves and buying gold
with the proceeds where they believe
that they are dangerously underweight in
Gold they have less than 5% of their
official reserves in gold with more than
two-thirds of their reserves in US
dollar denominated debt and a lot of
central Bankers in the emerging
countries believe that that’s a
dangerous skew it’s a dangerous
imbalance and so for 15 years they’ve
been doing something about it they’ve
been doing their best to redress that
balance we haven’t got an awful lot of
data yet on q1 that’ll come out later
this month or even early next um but the
data that we do have say that suggest
that one of the largest buyers has been
the People’s Bank of China uh that has
been one of the largest buyers for a
good deal of the last 15 years that they
have been significant buyers in the
first quarter of this year and uh
Singapore and a number of other
countries as well have already um gone
public with uh reporting purchases so um
we saw an all-time record level of net
central bank purchasing in 2022 we
almost matched that level in 2023 we
fell about one or 2% shy of it and I’m
expecting a very very solid performance
from Central Bank purchases again in
2024 certainly the year has started off
well with the limited data that we have
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from last year was nothing abnormal like
they didn’t purchase an abnormally large
amount of gold
relative yeah 2022 they purchased an
abnormally large amount um they bought
more than twice as much as they’ ever
bought in a calendar year before so that
was abnormal but we almost repeated that
last year um and it looks like we’re off
to a good start for 2024 as well so um I
think that 2022 was the abnormal year
maybe we have a new nor noral um for as
I say for 15 straight years now central
banks have been um accounting for
anywhere between 10 and 20% of total
gold demand total Global gold demand so
for jewelry for investment for
industrial purposes everything net
Central Bank buying has become a solid
performer in terms of the demand side of
the gold of the gold equation I’m
expecting that to continue is there a
reason for this uh interest from central
banks especially to continue what are
they preparing for for I I don’t know
that they’re actually preparing for
anything I think what they’re doing is
kind of rectifying where where the
history left them if you think about it
um most of the Emerging Market countries
really didn’t amount to very much in
economic terms during the Heyday of the
gold standard from 1870 to 1970 that was
essentially the UK Western European
countries and increasingly the United
States that were the economic
powerhouses then so their countries were
being used in settlement of intern AAL
transactions and as Reserve currencies
and because of the terms of the gold
standard uh the advanced economies of
Western Europe and North America had to
buy gold whenever they issued more
currency and they had to keep issuing
more currency to meet the demand for it
so as a legacy of those times central
banks in the um advanced economies of
Western Europe and North America have on
average more than 2third of their
reserves in the form of gold if you mark
everything to Market which in my view is
the only way to look at anything by
contrast Emerging Market Central central
banks were not able to use their own
currencies because nobody accepted them
internationally so they didn’t they were
not forced to buy gold in order to back
their currencies so they don’t have
these very large Legacy reserves of gold
that the Western European and North
American countries have as I said in the
Emerging Markets the average allocation
to gold is still less than 5 %c and
that’s something that an increasing
number of Emerging Market countries have
become very uncomfortable with and
that’s why for 15 years they’ve been
doing their best to to try to redress
that balance they’ve done a lot of
purchasing of gold but they still
haven’t really moved the needle China
still has only around about 4% of its
Reserves at Mark to Market in gold in
spite of significant purchases um so I
think that this is a trend that is very
definitely set to continue David okay uh
you mentioned that gold purchases from
central banks account for maybe 20% of
Demands what’s the other 80% than 80 to
90% um typically jewelry is anywhere
from 40 to 50% uh and that is uh you
know that’s that took a little bit of a
knock when covid first descended on us
in 2020 um gold jewelry demand around
the world was very badly hurt especially
in countries in the Emerging Markets
where they took uh lockdowns much more
seriously than than North America did
for example um now we’ve seen some signs
of recovery but I don’t think we’re
still I don’t think we’re back yet at
the kind of preco levels of jewelry
demand part of this in my view is the
the relatively sluggish state of the
Chinese economy right now um uh Xi
Jinping has been promising some stimulus
for the economy he’s worried about
unemployment been promising stimulus for
the economy for a long time
and I think that if I read the te leaves
of the most recent party Congress
correctly then I think that we’re
starting to see that stimulus become
reality starting to see some impact on
the Chinese economy if we get a recovery
in the Chinese economy and back to the
sort of growth pattern of six seven 8% a
year in GDP that we’ve seen in recent
years then we’ll get a big big Rebound
in gold jewelry demand and jewelry could
well go up but anyway jewelry anywhere
from you know from 45 to 50% of the
total um the industrial consumption of
gold primary for electronics tends to
hover around about uh 8 to 10% of the
total um not really much in the way of
change there over the over the years
that I’ve been looking at it and that
leaves depending on where jewelry is and
where central Bankers are that leaves
anywhere from 20 to 40% um for
investment and I think that uh We’ve
started to see the investment side pick
up uh a good deal in the course of this
year so I think that that is is likely
to help to uh to support prices and
perhaps even to drive them to new highs
okay we will get to your new highs in
just a bit uh but going back to uh
investment demand this is an interesting
statistic so I’m just reading a
paragraph from the world gold Council
regarding gold ETFs inflows and outflows
so North America set or saw net outflows
this year extend especially in February
uh however Asia was the only region that
they’ve calculated that had actually
captured inflows why the Divergence
between uh Asian investors and North
American invest investors I think I
think a lot of um the retail in investor
segment uh has has um has had some
exposure to ETFs over the 20 years that
GLD has been in existence for example um
but I I think they also have always
displayed a a tendency to light bars and
small bars and coins the traditional
forms of investment bars up to one
kilogram um and uh official government
issued coins we’ve seen a big jump in
the last couple of years in those and I
think that ETF demand has suffered um in
part because the the the retail investor
has tended to move toward physical
possession of gold rather than owning uh
owning an allocation to Gold through the
means of an exchange trade fund now in
the last few weeks we’ve started to see
inflows into GLD the biggest gold ETF
out there the one that we launched 20
years ago with the world go Council and
I find that’s an encouraging sign um
that we’re starting to see um a a return
to ETF investment as well as continued
strong bar and coin investment that’s a
great combination for gold historically
so ultimately what is the biggest driver
of the price of gold in any given time
period is it physical demand of bars and
coins is it demand for um synthetic
products like ETFs is it is it uh buying
buying from institutions buying from
central banks maybe an amalgamation of
all the above what do you think all of
the above is definitely answer David no
question you nailed that one um look we
we’ve seen uh an improvement and there’s
no one answer to this all the time right
there are times when jewelry takes the
lead there are times when investment
takes the lead I think there are times
even when when Central Bankers Take the
Lead I think what’s happening right now
is that we are seeing um continued very
strong demand from central banks around
the world I think that that’s a very
very good um uh level of support uh for
gold right now and has been uh for the
last several years um we’re seeing some
growth in the jewelry sector I’m
expecting more if the Chinese economy
recovers as I expected to and as long as
the higher prices don’t deter too much
in the way of purchases um and then uh
significant investment demand coming
back as well both in the form of bars
and coins and in ETF investment I think
that these are all good positive signs
for gold they’re all good drivers for
gold and if you think about it with the
U macroeconomic environment the way that
it is everybody on tenter hooks as to
what is the Fed going to do and when is
the Fed going to start doing it um all
of that is the Fed going to tip us into
recession or are they going to be able
to navigate that somehow um how much
longer will they have to keep interest
rates High given that inflation
especially on the fed’s preferred
Benchmark the core personal consumption
expenditure is still way higher than the
FED would like to see it and the FED
still has this target of 2% on core pce
and it’s way above there according to
the most recent readings and we’ve had
some increases in in uh in ious
different inflation indicators um so
with all of that in mind and then you
add in the the the shakiness of the
geopolitical background um armed
conflict in Europe with the potential to
turn nuclear uh what seems to be a
spreading conflict in the Middle East it
used to be just in uh the borders of
Israel um now it seems to have spread
and Iran seems to be getting involved
more not just through its proxies like
Hezbollah in Lebanon and the hoochi in
Yemen uh but but directly with attacks
from Iranian soil um that’s that’s all
very very concerning China is still
making rather belligerent noises toward
Taiwan uh and I think China is watching
very carefully the actions of uh the US
government here uh toward Ukraine as a a
bellweather for what would the US likely
do if China started to be more
threatening toward Taiwan so you have a
very um uh we’re all on tender hooks as
far as the geopolitical situation is
concerned and the macroeconomic uh
situation and historically that’s always
been good for gold in the past I want to
touch on geopolitics in just a bit but
uh just finishing off with central banks
how price sensitive are central banks in
other words now that gold has run up to
above
$2,300 do you expect a decrease in
purchases going forward at least until
price the price settles down a little
bit lower no my experience of central
bankers and I’ve had a lot of experience
with Central Bankers that was my main
job when I was at the world gold Council
for 15 years my experience of central
Bankers is they are simply not sensitive
to the price at all um they uh they have
no problem with the price going up as
they’re buying because it makes them
look very smart when they have to report
to their masters in government um so uh
you know I I don’t think of the most
price sensitive if you think about it
for 15 years they’ve been buying uh on
on significant quantities um and the
gold price was awful lot lower uh when
they started than it is now so they’re
all looking very very smart indeed by
having increased the the gold content of
their official reserves um and I think
that they expect to continue to do so
I’ve never known a time when uh when a
high gold price whether you talk about
the 1970s or 80s or or even today I’ve
never known a time when a high gold
price acted as any kind of a det terent
to to buying by central banks I think
price insensitive would be the way that
I would characterize most of their
activities well given that most central
banks around around the world especially
in the East have been buying like you
said I have to point out some exceptions
in the past Canada as you know the only
G7 country that doesn’t hold any gold
currently they sold off most of or all
the gold reserves in the 2000s have you
seen any signs of other countries in the
developed World sharing similar
attitudes as Canada and perhaps
alleviating or selling some of their
gold reserves in the future no I think
Canada is very much out on its own as
far as this is concerned but you have to
remember when Canada started to sell um
which was in the early 1980s if memory
servs me correctly yeah um they uh they
made the point that um all of the
foreign currency in Canada’s Reserves at
that time in the early 1980s was
borrowed the only asset that Canada
owned was gold so you could say that
100% of their official reserves were in
the form of gold and even someone like
me who’s very fond of gold and likes to
invest in gold and really sees the
benefits of individuals and institutions
and especially central banks all owning
gold even I would say that 100% was
perhaps a little bit overweight as far
as gold was concerned so I wasn’t
surprised to see them selling pretty
consistently through the 80s and then
through the 90s I have been somewhat
surprised to see that Canada alone among
uh the alone among any country that I
can think of um has actually gone down
to zero uh in their official reserves it
seems to me to be um a uniquely Canadian
approach uh to reserve management and
one that uh I’m I’m not really sure that
that was the right thing for them to do
I understood why they wanted to sell
when gold was the only asset that they
owned um but that’s no longer the case
and and I still uh you know I still
wonder if we might actually see Canada
on the buy side again at some point in
the future okay uh going back to
geopolitics you mentioned a number of
hotspots around the world I remember
when uh the Russia Ukraine war first
broke out in February 2022 analys of the
time we’re calling for a $200 gold
premium and as you as you remember gold
actually did go up uh significantly um
shortly after the invasion before coming
back down how much of a war premium or a
geopolitical risk premium is currently
baked into the price today
George that’s a very very hard one to
answer David it’s it’s it’s a good
question um but it’s a very hard one I
think you know it varies from investor
to investor I think that that um the war
premium essentially is is really all
about um investment demand we have seen
investment demand pick up um over the
last year or so and I think that the the
um the the political environment clearly
really has something to do with that but
I don’t know that I would care to try to
quantify how much you know that’s a
little bit like using six matches to
light a bonfire and saying uh and then
trying to quantify how much is respons
how much each match is responsible for
and not a game that I’m good at playing
David are you expecting well let’s frame
it differently are you expecting more
investors to price in more of a premium
going forward in other words are you
expecting hotpots to be erupt such that
people would rush to gold for safety um
I don’t know about rushing to gold for
safety I I think most of what we’ve seen
um has really been solid long-term
strategic asset allocation type buying
there may have been some speculative
froth in there um but I think that you
know the speculators they tend to really
appreciate the liquidity that that ETFs
such as GLD can bring to this Market
they like the low trading costs that
that solid liquidity um gives them so uh
if we were seeing speculative demand in
the market I would expect to see it more
in exchange traded funds than in the
various other forms of of gold
investment and we haven’t seen a big
surge in uh in in ETF in in buying of
gold ETFs at this point if we do then I
think some of that may well be
speculative but some of it may still be
just the continued growth that we’ve
seen over the past 20 years in long-term
strategic asset allocation buying
right um historic let’s talk about some
macro variables that may impact the
price of gold um two of the most
important or highly correlated variable
should I say with gold the dollar and
the real interest rates let’s start with
real interest rates first uh as you know
the 10-year real interest rate has been
rising all throughout the last year and
actually since
2021 um are you surprised that gold has
continued to rise alongside real
interest rates given that historically
they’ve been neg negatively correlated
yeah I’m not so sure that uh that the
relationship between gold and real
interest rates um amounts to uh I’m not
sure that I would call it uh
statistically significant in terms of
being a correlation I think that the
correlation that I tend to watch is the
relationship between gold and the dollar
um and I think that sometimes moves in
interest rates can move the dollar so
but I think that there’s a lot of um a
lot of people I mistakenly think that
it’s interest rates that move the gold
price it’s not it’s the response of the
dollar to interest rate moves that’s
what moves the gold price um if you
think about it we’ve had uh you look at
the most recent you look at three or
four of the most recent periods when the
FED has been in in sustained tightening
mode the gold price has gone up along
with interest rates going up as well
whether you’re looking at nominal rates
like the FED funds or whether you’re
looking at real rates on the 10-year so
I I don’t don’t see a strong inverse
correlation type relationship there what
I do see is that for most of the time
that I’ve been looking at Gold um that
there has been a kind of inverse
relationship with the US dollar and
again as I say the course of the US
dollar can often be significantly
impacted by changes in interest rates um
but if you you know if you think about
it in
2022 um the Fed was was
of the opinion that markets were not
really taking them seriously they were
already starting to use the Mantra of
hire for longer and the markets
continued to go up without really paying
the FED very much attention so I think
the FED decided to uh to get the markets
attention which is why they rais rates
having raised rates by 25 basis points
most meetings they suddenly decided to
raise rates by 75 basis points at three
consecutive meetings in the fall of 2020
2 now that didn’t hurt gold but what
hurt gold was the fact that those um
interest rate increases drove the dollar
to a 20-year High against any other
currency around the world that you care
to look at and that I think posed
something of a headwind for gold it
didn’t drive the gold price down gold
didn’t go down in 2022 it didn’t go up
either so I think what the the the
strength in the dollar did was pose a
headwind which prevented gold from going
any higher it may be that we’ve started
to uh uh to to reel in the the the
increases that we might have seen a
couple of years ago that may be part of
the reason for uh for the strength and
the price today uh you’re absolutely
right about the U relationship between
the gold price and the dollar it’s
interesting though ever since I’m
looking at a chart here ever since the
uh end of March or middle of March the
gold price and the dxy have moved in
tandem meaning in a straight line
upwards how do we explain that yeah as I
say for most of my career I expected an
inverse correlation it was never a one
to one but I expected an inverse
correlation between gold and the dollar
when the dollar was strong I expected go
to be weak and vice versa but I think
2008 changed an awful lot of things and
one of them is there’s been a
significant change a c change if you
like in the relationship between gold
and the dollar um what we have now is
that when the dollar is strong gold can
go up down or sideways it has at various
different points since 20 2008 uh done
all of the above but every time the
dollar has weakened since 2008 then gold
has tended to go up so what you have now
is not an inverse correlation you have
uh an asymmetrical relationship and I
think that that really works to Gold
benefit because if you think about it um
when you know when the dollar is strong
and everything in the market seems to be
fine and equities are going up then you
don’t worry about the protective assets
you don’t worry about the performance of
your hedge against potential poor
performance by equities or by the dollar
but it’s when equities and or the dollar
tend to go down that’s when you want to
be damn certain um that your hedge your
protection against that weakness is is
performing and that’s exactly what gold
has done in the 16 years since
2008 um well let’s talk about equities
to go we’re going to go through all
these variables that have been
historically um important for gold I’m
just from a sentiment perspective you’re
right the perception of gold is a safety
play but there just doesn’t seem to be a
lot of risk off appetite at least not
until last week up as you know this year
the the Dow Jones has continuously
broken new all-time highs Bitcoin what
maybe many consider a speculative asset
has broken new alltime highs there seems
to be a lot of Market Euphoria towards
risk on assets so why still the positive
sentiment towards gold which is nothing
at all like Bitcoin OR tech stocks it is
an odd situation isn’t it to see
equities equities cryptos and gold all
hitting record highs very very close to
one another and by the way I don’t mean
to rent up the last time it happened was
when this happened was when the FED had
unlimited QE back in 2020 that’s not
what’s going on today so I’m curious to
get your thoughts yeah no look I think
um I think you’re right that the market
still has a very serious appetite for
risk um I might even Venture that uh
that that might well be something that
they will find the markets will find
rather Danger dangerous um in the coming
months just an opinion that that’s all
but um the markets still have a very
serious appetite for risk you’re
absolutely right but I think it’s in
that kind of an environment when most
investors are going risk on as much as
they possibly can and Levering up in
order to go risk on um it’s at that
point that the some the more cautious
people perhaps the more conservative
people investors such as myself really
see the true value of of the prote ction
that gold can offer against potential
weakness in other markets and I think
that um you know I I like the notion of
of protection um and I like to add to
protection the more um you know I may be
doing the same thing I may be adding to
more risky assets but I’m also adding to
more protective assets at the same time
um and I think that’s really just just
readjusting my portfolio to the the the
market circumstances at any given time
which I try to to try to do so I think
that there are a number of people whose
response to the Market’s uh insatiable
appetite for risk has been to look for a
risk-off asset such as gold and I think
that’s one of the reasons why gold has
done well at a time when the riskier
assets have also done well um a lot of
riskier assets have done well tech
stocks I mentioned with magnificent 7
cryptos have done well what hasn’t done
well at least relative to gold is gold
miners I’m not saying they haven’t gone
up they have but gold has still
outperformed many of the gold miners and
if you look at the GDX over a long
longterm period it’s still nowhere near
its all-time highs of 2011 whereas gold
as you know has far surpassed its
all-time highs why this Divergence
despite this risk appetite that we
talked about despite the positive
sentiment towards gold look the the the
drivers of of gold mining company stock
per stock price performance are many and
varied gold is just the gold price is
just one of the inputs um there are all
sorts of other inputs into the
performance of of of gold mining company
shares you know um how good is the
management how skillful are they how
good are they how lucky are they with
merger and Acquisitions activity mining
is an inherently Risky Business um do
they seem to be a company that has has
mastered the risks or or do they seem to
be a company that is exposed to risks uh
a whole bunch of different things all of
the things if you like um that affect
the the stock price performances of tech
or farmer or financials or any other
kind of company because these are
companies they are not just gold they
are they are gold mining companies and
that means that they have to be properly
managed um and all of the things that go
with good management and that’s what
tends to generate good stock price
performance um the the gold price is
only one um element of the inputs that
determine um the the the level of gold
mining shares well if someone were to
say to you George I believe that gold
miners are a better way to be exposed to
Gold than actually the metal itself
right now precisely because of this
undervaluation we’re seemingly under
valuation how would you respond to that
I would say that um I I recognize that
when when um when markets are moving up
um then uh the gold mining shares
frequently demonstrates some leverage
over the the actual gold price I mean
the conventional wisdom used to be a
long time ago but conventional wisdom
used to be if gold goes up 1% gold
mining stocks will go up 5% I don’t know
that was ever that mathematically um
clear um but nevertheless I I do
understand the the concept of Leverage
um the problem is Leverage is great when
things are moving up but leverage can
bite you when things are going down um
and that is always the issue uh when
gold mining uh when when the stock
market takes a downturn then typically
in history gold mining company stocks
have gone down with the general level of
the gold price they’re not protected by
their exposure to movements in the gold
price whereas uh um a pure investment in
Gold such as GLD for example or in the
physical possession of one of bullion on
one’s own account um that responds
purely and simply to movements in the
gold price and that’s really all um so
that there is a difference there that
that gold mining company stocks remember
that they’re stocks whenever the stock
market takes a downturn and I think part
of the reason why people have been
buying more gold recently um investors
have been buying more gold recently has
been growing fears of some kind of
softening in the equity Market um the
equity Market’s gone up very very
powerfully for a very very long time um
and uh I think it’s very easy for people
especially newer investors to forget
that markets are still cyclical I’m
trying not to forget that that’s one of
the reasons why um why I still think of
gold is a very very good bet because of
the protection that it offers well the
equity Outlook aside if a gold bear were
to make a bare case for you uh George
and say that well a lot of the variables
that we discuss that have traditionally
held gold back are broken in in other
words the dxy for example surging
recently in the last couple of weeks
right that correlation hasn’t held uh
the inflation expectation which is also
traditionally something that people have
looked at expect inflation expectations
are going down not up in fact the
inflation the actual inflation rate has
been on a downward trajectory for quite
some time and um if you take a look at
all these things into account and the
current risk sentiment is still strong
if you take a look at all these things
um that have historically been negative
for gold well it’s only a matter of time
before gold corrects to its true fun
fundamentals which is to be more in line
with these macro variables how would you
respond to that yeah I’m I I certainly
wouldn’t agree with you on on the face
of that David absolutely not look okay
um I I I I think that um I think that we
still don’t clearly understand the
relationship between gold and interest
rates I think that we are getting a
better understanding of the relationship
between gold and the dollar which is
that when the dollar goes up gold does
not necessarily go down um it’s just
whenever the dollar goes down that gold
tends to go up so I think we’re getting
a much much clearer understanding of
that um so I would dismiss that one as
an argument um I think that you know uh
if if we were to get a sudden outbreak
of Peace around the world I think that
would be a wonderful thing um it may be
that some people might tend to reduce um
their protective assets uh in the face
of of an outbreak of peace but frankly I
don’t see an awful lot of chances for an
outbreak of Peace given the various
different places and the very different
reasons why we have conflict around the
world whether it’s armed conflict or
whether it’s just political conflict um
and and posturing so um to me I think
that there remains a very solid case for
gold I think you know what I like about
gold is that historically the promise of
gold for investors has always had a dual
nature in history that gold can um can
offer you protection against potential
weakness in equities against potential
weakness in the dollar against potential
weaknesses in any other investment asset
you care to think about so gold can
offer you some protection and gold over
time not every year but over time gold
can help to enhance the returns of a
properly balanced portfolio and I that
offers me Protection Plus performance is
going to get my vote as an asset that I
want in my port folio D something that a
lot of people have asked me personally
which I’ll ask you um obviously nobody
knows but according to your research and
what you understand can we see
$3,000 anytime soon by soon I mean in
the next 12
months uh you know we we recently
surpris you would that surprise recently
we recently topped out at a fraction
over
2400 um which was itself up uh you know
$300 or $400 from the lows that we
reached in February
where we were actually under $2,000 for
a while um I think it’s a lot to ask for
another $6,000 on the price within this
within this calendar year um I would not
expect that um but you know gold has
tended to surprise me on many many
occasions and I would you know wouldn’t
be surprised to see gold take me by
surprise one more time and it’s not
something that I’m predicting I think
that uh you know we’ve already seen $400
of an increase
a little over $400 of an increase from
the lows in back in February I think
that that’s a pretty darn good
performance for gold already I know that
when the Market’s moving up and seems to
be gaining momentum everybody moves
their forecasts around well we put out
our forecast at stage Street put out our
forecasts at the back end of last year
um they still hold pretty good uh our
base case was for goal to trade between
1,950 uh and $2,200 an ounce our bullish
case called for gold to trade between
2,200 and $2400 an ounce um so we’re
still pretty much in the the topper end
of of the range that we were looking for
we’ll take another look at this around
about midyear David and we may well
adjust our forecast at that point um but
uh this early in April I I’m not minded
to make a a great big forecast uh of
where the gold price is going to be I
recognize that the banks have to do that
because they want to generate trading
opportunities and they want to encourage
people to to take action um I don’t have
to do that so uh I’m not going to change
my my position at this point as I say we
would we believe that our base case at a
50% probability waiting our bullish case
that 2200 to 2400 we gave a 30%
probability waiting so we were pretty
confident the gold would stay where it
was earlier in this year or would go
higher we’re 80% confident of that and I
remain confident uh that those numbers
still make sense okay uh I’m not saying
this has to happen but suppose we were
to reverse engineer a scenario in which
gold goes to $3,000 what would that
hypothetical Catalyst B well I’ve
mentioned a couple of things that might
get us there if we were to fall into
recession which uh I’m not convinced um
that uh that Jerome pow has discovered
the magic of uh of never actually having
a recession um higher interest rates
have in the past pushed us into
recession on more times than I get to
think think about so I think a recession
might be a problem especially as that
would logically be accompanied but be by
a significant downturn in the US Equity
market and by a significant downturn in
the value of the dollar internationally
so that would be something that uh um
you know that that could help to push
gold up there and on the geopolitical
front you know I’ve mentioned the
possibility escalation both in Ukraine
and in the Middle East uh and the
possibility of of um political action as
opposed to political statements as far
as China and Taiwan are concerned so
there’s a whole range of things out
there that could push prices a good deal
higher um but I’m not going to bank on
them until they actually become reality
D very good thank you very much for your
analysis Today George where can we learn
more about you and your work ssg.com you
can find uh materials that uh that the
the team that I’m part of at State
Street the gold strategy team we put out
an a large amount of of written
materials um and I think that that’s as
good a source as any that you’ll get so
thank you very much for your time David
I appreciate the opportunity well we
appreciate your time and your Insight so
make sure to follow George in the link
down below and we’ll speak to you again
soon plenty to talk about in the gold
market uh I’m sure in the ne in the
coming months I look forward to that
thank you and thank you for watching
don’t forget to like And subscribe

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George Milling-Stanley, Chief Gold Strategist at State Street Global Advisors, discusses the most important drivers of gold demand and what’s next for the price.

*This video was recorded on April 16, 2024

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0:00 – Gold price recap
6:00 – Central bank buying of gold
11:07 – Gold demand
18:28 – Central banks and gold price
21:36 – Geopolitical risk premium
24:25 – Gold vs. real interest rates
27:28 – Gold vs. Dollar
29:30 – Gold vs. Risk assets
31:36 – Gold vs. Miners
35:38 – Gold correction next?
38:25 – Gold price forecast

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