What Does the Skyrocketing Price of Gold Signal?

Globe on fire
Global hotspots threaten to burst into flame

If you don’t own an ounce of gold, you can still learn something from the recent price movement of precious metals.

For example, in early February, gold was trading at less than $2,000 per ounce. Now, in early April, it has topped $2,360 per ounce, and the numbers show no sign of reversing. In the short run, gold is up 8.7 percent in the past two weeks and almost 15 percent year-to-date. Taking a longer view, gold is up about 83 percent in the past five years.

If we look at this as a data point, what does it tell us? What conclusions can we, as preppers, draw from this extended increase topped off by a rapid rise in the past few weeks?

Geopolitical Tensions

While the gold market is hitting new all-time highs almost every day, fluctuations in the price of gold are nothing new. Historically, it moves in the opposite direction of the U.S. dollar, although that is not the case this time. Sometimes fluctuations are driven by supply and demand; at other times, price changes are driven by geopolitical tensions. The latter seems to be the case now.

Therefore, we can conclude we are living in a period of heightened geopolitical tension. Because the price of gold has been rising rapidly, it is safe to conclude that those tensions must be ramping up. In other words, banks, wealthy individuals and possibly even countries are looking to park their funds in gold because it is a safe, stable place. Instead of making riskier bets in the market, which could plunge if war breaks out, they are making safer choices.

I think fears about the war in Ukraine have been baked into the gold price already. The war in the Middle East, however, represents a much greater unknown. On top of this, we have the uncertainty of a presidential election in the U.S. and what the outcome could mean to the war, global trade, etc.

It should come as a surprise to any prepper that this is a period of uncertainty and that we face a multitude of threats. In this case, the price of gold just confirms that those outside the preppersphere feel the same way. And when gold steadies or drops back to a lower trading range, you can assume the degree of uncertainty gas also retreated.

Chinese Buying

I believe Chinese consumers are partially responsible for driving up the price of gold. As their economy struggles, the Chinese property market suffers, and their stock market underperforms, Chinese investors are looking for a safe place to park their wealth. Besides buying gold bullion, they are pouring money into ETFs that invest in gold. The ETF then has to buy gold on the futures market, which drives up the price. This is in addition to the gold purchases made by China’s (and other) central bank that are looking to get out of the U.S. dollar but still want a stable investment.

Eventually, investors in the U.S. will come to the same decision. When they pour funds into gold and silver ETFs, the prices could explode even higher. When you or I buy a few ounces, the market doesn’t budge. But when billions of dollars get poured into exchange-traded funds, it can move the market.

It’s enough to make me wish I had followed my own advice and put more money in gold and silver back when we were preparing for inflation.

Is there a “Costco Effect?”

Membership warehouse Costco mentioned it had sold $100 million worth of gold in late 2023. Wells Fargo now estimates that number could have grown to $100 to $200 million in gold per month as Costco lifted the limit from two coins per customer to five coins. Depending on pricing, that’s 45,000 to 90,000 ounces of gold per month. Certainly more than your local coin dealer. But is it enough to move markets?

In 2023, the U.S. Mint sold 924,000 Gold Eagles and 387,000 Gold Buffalo coins, or a total of 1.31 million ounces of gold. While Costco usually sells gold bars from South Africa or Switzerland, not American Gold Eagles, selling 600,000 to one million ounces of gold might indeed impact the consumer market. Even if that doesn’t drive up the cost, gold at Costco and the news coverage it has generated attracts the attention of consumers who have never purchased gold. It makes buying gold coins more acceptable and increases the size of the market. That kind of demand can also drive up prices.

Silver Surges

Gold is not the only precious metal that has surged in recent weeks. In the past month, silver has climbed from $4 from $24.50, or 16 percent. Year to date, it is up 23 percent. In the past five years, silver is up more than 86 percent.

Just a month or two ago, it took 90 ounces of silver to buy a single ounce of gold. Today, that number has dropped to less than 84 ounces, a drop of 7 percent. This tells us that silver is gaining speed faster than gold.

Silver may also have more room to run. While gold is at an all-time high, silver can gain another $20 an ounce and still be below its high of over $50. And that doesn’t account for inflation.

What does the rising silver price tell us? Probably nothing more than consumers who cannot afford to invest in gold are buying silver, driving its price up. And for the record, the U.S. mint produced 2.475 million Silver Eagles last year.

What Should You Do?

What should you do, given the rising metals prices and the corresponding rising geopolitical tensions? You should do what we always recommend and keep prepping. Maybe that means buying some extra food at the grocery store this weekend, a few pounds of pasta, a couple jars of sauce, and some canned goods. Maybe it means adding a water filter to your bugout bag. It could mean ordering some #10 cans or a few 5-gallon pails of long-term storage foods. Perhaps it means buying a roll of pre-1965 silver quarters for $225. Each of us has to prep based on where we are in our prepper journey and as our budget allows. The key is to not get complacent, especially when the rest of the world is braced for something to go wrong.

Here’s an article related to Costco’s gold sales that ran after we first published this post: