Gold: Most Have No Clue
Contributed Opinion

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Yesterday, gold was down about $230 on the Comex. It looks like my $4,350 target is being met, and then a correction/consolidation is turning out to be bang on. I mark this more to logical intuition than technical science. I am sure today the voices are loud, saying the gold bull is over!

Those still hesitant to get their feet wet will remain so, and those who just jumped in will probably panic sell at a loss. Those who have been piling into the DUST ETF are popping champagne for the biggest gain since 2024. Though it only matters if they sell, taking profit, but they are probably too greedy to do so.

I have commented numerous times that gold cannot go straight up and numerous times that I believe many North American investors are not in the gold bull market yet because they don't get or understand what is driving gold.

I have no doubt now, as a Globe and Mail article this past Saturday said just that, " nobody really knows what is driving the gold frenzy." And had some analysts confirming such — My comments in bold

The Globe's Ian McGugan wrote that it is distinctly odd, as Morgan Stanley noted last week, to see U.S. stocks roar upward at the same time as gold is also ripping higher. The two trends represent diametrically opposed outlooks. The bull market on Wall Street suggests widespread euphoria about what lies ahead. The bull market in gold suggests a desperate search for safety. Make of this what you will.

"The latest rise in gold prices seems to have also come out of nowhere, and no one really has any idea what's going on."

What they don't get is that the gold rally is not a search for safety but a loss of confidence in the US$, other fiat currencies and ridiculous government spending. It is like the 1970s, but you would have to experience that to easily relate it to now.

The Globe article continued — Brookings Institution economist Robin Brooks wrote last week in what may be the most honest assessment of the current situation. Mr. McGugan says it is not generally a good idea to invest in an asset that is rising for reasons you do not understand. He says he can understand the desire to ride the gold bandwagon. Just be aware that the perception of safety in gold is largely an illusion. Someone who bought bullion at its 1980 peak would have had to wait 25 years to get back to even. Someone who bought gold at its 2011 peak would have had to wait nine years to be back to where they started.

Again, the flight to safety is not what is going on. Also, you can pick all kinds of things and highlight that it took many years or decades, like the Nasdaq, which took 15 years to recover to the 2000 peak. Oil peaked in 2008, and 17 years later, it is not even close to recovering and, in fact, is still -60% below that peak. History is just that, and is usually not relevant to today.

From here, my comments only.

However history is something you can learn from. As I keep commenting, we are in a similar situation as the 1970s, stagflation and a loss of confidence in the US$ and government over spending.

The last couple of years are like 1968 to 1971, when the U.S. was on the gold standard, but Central Banks around the world lost confidence and were cashing in their US$ for gold. Finally, as the gold drain increased, Nixon closed the gold window on August 15, 1971, amid a series of economic measures, to combat rising inflation, including wage and price freezes, surcharges on imports.

Countries were cashing in US$ for gold, climaxing on August 11, 1971, Britain requested $3 billion in gold be moved from Fort Knox to the Federal Reserve in New York. As Paul Volcker, then Undersecretary of the United States Department of the Treasury for Monetary Affairs, later put it: "If the British, who had founded the system with us, and who had fought so hard to defend their own currency, were going to take gold for their dollars, it was clear the game was indeed over."

Nixon said he would go back to gold convertibility with changes to the Bretton Woods system. But finally, this was abandoned in 1973, and the US$ was a complete fiat currency. Of course, the loss of confidence continued with gold rising against the US$ all of the 1970s. There were numerous issues back then, like the oil embargo, high inflation, and rising interest rates.

It is not exactly the same, but as is often the case with history, it rhymes. Today, we have higher inflation and rising interest rates. Central Banks have been cashing in US$ for gold at a high pace since 2022, when inflation started to rise, and the implementation of Basel III, which reclassified physical gold as equal to U.S. treasuries. More confidence was lost among many countries when the Biden Administration weaponized the US$ against Russia. Many countries rationalized, why hold US$ and be subject to that risk, and fled to gold.

Like today, in the 1970s, high government spending and deficits were blamed for inflation and a loss of confidence in the U.S. government's economic policy. This has been percolating higher for years but really got out of control in 2020 and continues unabated, This is occurring in other major western countries too that are also fleeing to gold.

For gold, it is not a flight to safety but a loss of confidence in fiat currencies and government fiscal policies, just like the 1970s. Plus Basal - III reclassifying physical gold.

Also just like the 1970s, it is a move to physical gold, not the paper contracts like Comex Futures that the majority of these younger analysts grew up on. Like Robin Brooks above, completed his PhDs in the 1990s.

In the 1970s, to restore confidence in the US$ amid an oil crisis and skyrocketing prices due to OPEC sanctions, the U.S. and Saudi Arabia struck a deal in 1974. Under this agreement, Saudi Arabia agreed to sell its oil exclusively in U.S. dollars in exchange for military aid, equipment, and protection from the U.S..

This ensured a steady flow of oil to the U.S. and a market for its debt, while Saudi Arabia received security assurances and economic support. As this progressed over the years, other countries had to buy US$ so they could buy oil. This was the birth of what became known as the Petrol Dollar and was a major factor supporting the US$ for decades. Interesting, because this agreement ended in 2024, another recent blow to the US$.

What Now for the 2020s?

This is early days in the gold rally compared to the 1970s rally and other gold rallies. Currently, there is no end in sight for inflation and the government fiscal mess. The rate of increasing inflation has slowed, but I would bet it starts increasing again in 2026.

There are a couple of events that could help to start to repair the loss of confidence. The Fed is the only Central Bank in the world defending the US$ against gold, holding a large short position in gold. Probably before long the Fed will reconcile that short position, but driving gold much higher. Interesting is the best to my knowledge is that the bullion banks acting for the FED are all long gold on their own books. They see the writing on the wall.

There has been a lot of talk of the U.S. revaluing its gold reserves to fix the deficit. Unlike other countries, the U.S. gold is not held by the Central Bank (Fed) but the government as gold certificates (261.5 million ounces) with a book value of about $42 per ounce. At $4,000 gold if it was marked to market it would be over a $1 Trillion infusion of cash.

However, this would only cover about 1/2 of the estimated $1.973 trillion deficit for the fiscal year. I see this as only a short term bandage. If the U.S. could get it's deficit closer to $1 trillion and convert the gold reserves at $10,000 or higher. This would be a game-changer. I see this as a way off yet, but my main conclusion, the gold price is currently way too low to consider revaluing the U.S. gold reserves.

Let's look at a good gold stock to buy in this consolidation: B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX).

B2Gold Corp.

^{Recent Price - CA$7.17}

^{Entry Price - CA$4.45}

^{Opinion - Buy}

I had B2Gold Corp. (BTG:NYSE; BTO:TSX; B2G:NSX) as a Buy for the longest time, but I moved it to a Hold when it finally moved higher.

With this pull back and the fact B2Gold is still a big laggard, it is among the best Buys on our list.

In 2020, BTO produced 1,041,000 ounces of gold with a realized selling price of $1,396 per ounce. In 2025, they will produce about the same ounces but are going to get over double the price per ounce sold. In 2026, production will see a good jump with a full year production at Goose in 2020, AISC were $788 per ounce, and this will jump to around $1,500 in 2025.

That is about $700 per ounce higher, but they are selling the gold over $1,400 per ounce higher than in 2025. In a crude cost/profit analysis, the cost to sales spread in 2020 was about $700 per ounce, but in 2025, this will be about $1,500 per ounce.

Another way to look at this is that gold has gone up about +55% this year. B2Gold finally started moving higher in June, basically going from $5 to about $8, up about 60%. B2Gold is showing no leverage to rising gold like most gold stocks have, even though they have superior growth with their new Goose mine just starting production.

Let's look at their value per ounce.

B2Gold has 1.8M ounces measured + 17.54M ounces indicated

At US$5.10 X 1,322M shares outstanding, the market cap is US$6.742 billion - $308M cash = $6.434 billion valuation

This values their measured and indicated gold resources at around US$332 per ounce. This would be a fair valuation back in 2000, around $1,800 gold price, but not today at over $4,000.