Supply + Demand = $5K

Great Minds and Gold

We’ll file this one under “Great minds think alike.”

Hedge fund legend John Paulson expects gold to reach nearly $5,000 an ounce before the Trump 47 presidency is over. (Checking our screens this morning, it’s about $3,350.)

Paulson is best known for having the foresight to short sell subprime mortgages before the housing and credit markets blew up in 2007–08. More recently, he was under consideration for Treasury secretary in the current administration.

As for $5k gold, “It’s a well-informed prediction. I think that’s a reasonable number,” Paulson tells the Reuters newswire.

"As central banks and people look to put their money in a more stable source... I think gold will increase its position in the world.”

Paulson knows what our own Jim Rickards has been saying for over three years. The Biden administration freezing the dollar-based assets of Russia’s central bank changed the game forever.

"When the war started, [Russia] kept their physical gold, that was safe, but all their cash — the paper reserves — was confiscated," says Paulson.

"So that caused other central banks to wake up and say ... 'What happens if there's a conflict with the U.S.? Could the U.S. keep our Treasuries, and all our savings would disappear?'"

The result is as clear as can be on this chart: Central bank gold buying set a record in 2022… and the furious pace of buying continued in 2023–24.

“Central banks, predominantly from developing markets, moved from being net sellers to net buyers of gold in 2010,” says Jim Rickards, elaborating on the trend.

“The top buyers were the central banks of Russia, China, Turkey, Poland and India.”

Russia’s gold reserve, relative to the size of its economy, is the biggest in the world. And China’s is likely much higher than Beijing publicly discloses.

So global demand for gold is rising at the same time global supply is tightening. As always, the law of supply and demand is doing its thing.

“Global mining output of gold was about 130 million ounces in 2018 and was about 120 million ounces in 2024,” Jim says. “Output declined slowly from 2018–2022 and then recovered slowly over the course of 2023 and 2024 but the change in both directions was slight.

“Gold production is projected to grow slightly from today until 2030 but is still not projected to exceed the 2018 high. In short, gold production by miners is flat.

“This does not mean that we are at ‘peak gold’ or that new discoveries are not being made. They are. What it means is that gold is becoming harder to find and costs of production (especially water and energy) are going up so the total output trend is flat. Of course, Newmont itself can beat this trend by buying junior miners and increasing its corporate output even as global output is flat.

“Continually increasing demand with flat output is a recipe for higher gold prices.”

Jim is on record with an outlier projection of gold topping $27,000, based on a calculation of U.S. money supply and a hypothetical 40% gold backing of the U.S. dollar (as was the case between 1913–1946.)

Absent that eventuality, Jim is on board with Paulson’s outlook. As he wrote his Strategic Intelligence readers last fall, “I expect gold prices (measured as dollars per ounce) to gain substantially over the next five years, perhaps to $5,000 per ounce or higher.”

[Editor’s note: You have an unclaimed package from Jim Rickards: It’s valued at $400 and waiting for you… but supplies are limited and may soon run out.

To secure your package — an assortment of items Jim has hand-selected to protect you from the all-out financial trade war — watch this short video message for instructions.]

Markets Today: The First Deal

We’re back to a “headline-driven” market — and stocks are rallying modestly on news of the Trump administration’s first trade deal with another country since the April 9 pause on so-called reciprocal tariffs.

As we write, we’re awaiting details of an agreement with the United Kingdom. The S&P 500 is up a half percent to 5,661 — close to where it was just before the “Liberation Day” announcement on April 2. The Dow is also up a half percent, the Nasdaq three-quarters of a percent.

That’s not a huge rally given the amount of anticipation for a deal of some sort. Perhaps that’s because the deal is with the U.K. — America’s No. 8 trading partner and a country with which America has a trade surplus.

British leaders have been eager, nay desperate, to cut a trade deal with Washington ever since British voters approved “Brexit” — the U.K.’s departure from the European Union — in 2016. A deal with the U.K. was always going to be among the easiest to reach.

Yesterday’s modest rally can likewise be chalked up to trade news: U.S. and Chinese negotiators will meet this weekend in Switzerland.

The announcement from Beijing said it was Washington that made the first overture — and no one in the Trump administration has publicly pushed back on that claim.

Meanwhile, absent a deal with China, we see the supply chain snags are finally getting some mainstream attention…

… even as the administration’s critics are upping their meme game.

Meanwhile, in a development that surprised no one, the Federal Reserve left short-term interest rates alone yesterday. Equally unsurprising was Fed chair Jerome Powell saying, “If the large increases in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation, a slowdown in economic growth and an increase in unemployment.”

Elsewhere, Bitcoin is flirting with six figures again. The flagship crypto is fetching $99,570 at last check — a three-month high.

As noted above, gold is hanging tough at a little over $3,350. Silver’s in the green at $32.67. Crude is up over $1.50 to $59.62, the highest so far in May.

Scrambled Shipping, Middle East Edition

Don’t expect normal shipping through the Red Sea to resume anytime soon.

As you might have heard, the Trump administration has reached a truce of sorts with the Houthi faction of Yemen.

At various times over the last 19 months, the Houthis have been harassing U.S.- and Israeli-linked shipping through a narrow waterway off Yemen called the Bab-el-Mendab — an act of solidarity with the Palestinians of Gaza.

The Houthis called off their attacks earlier this year when Trump’s envoys brokered a ceasefire between Israel and Hamas… but when the ceasefire fell apart, the Houthis resumed their attacks, including attacks on U.S. warships and other military hardware.

For a group widely advertised as a “ragtag” outfit, the Houthis have achieved impressive results — forcing much shipping between Europe and Asia to take the long route around Africa.

And they’ve inflicted major losses on the U.S. military — more than 20 MQ-9 Reaper drones at a cost of over $30 million each.

Last month, incoming Houthi missiles forced evasive maneuvers on the part of the aircraft carrier USS Harry Truman — sending an F/A-18 fighter jet sliding off the deck and into the drink.

Shortly after word of the U.S.-Houthi truce on Tuesday, word came that another F/A-18 aboard the Truman was lost to the Red Sea.

Was that incident Trump’s last straw? Or did someone remind him he was against this war before he was for it?

In any event, Israel is not a party to this truce. A senior Houthi official tells the Reuters newswire that attacks on Israel and the blockade on Israeli shipping will continue until there’s a ceasefire in Gaza.

So far there’s no announcement from Maersk or any of the other big shipping lines that they’ll resume transiting the Red Sea. And we’re not holding our breath.

In a related Middle East development: Reuters reports that Team Trump is mulling over a plan for a U.S. administration of Gaza whenever Israel’s siege campaign is over.

The newswire cites five anonymous sources who “compared the proposal to the Coalition Provisional Authority in Iraq that Washington established in 2003, shortly after the U.S.-led invasion that toppled Saddam Hussein.”

Because that worked out so well, right?

In any event, it seems Trump still hasn’t let go of his desire to “take over” Gaza, even if such a scheme is the direct opposite of an “America first” agenda.

Economic Oddity

We present the following with no further comment…

Mailbag: Intel, Blackout Nation, SOMA

“No analyst in financial newsletters is neutral on Intel,” a reader writes after James Altucher stated the bullish case in Tuesday’s edition. “Most are quite negative.

“For every cheerleader such as James Altucher, there are easily three–four who say, ‘Intel is past its sell date,’ or ‘Leave for dead,’ or ‘There are better plays in semiconductors.’ Typically the naysayers are short on specifics but strong on the rehashes I have read ever since the stock sunk to $20.

“James provides two solid reasons for a potential Intel inflection that I have not read about elsewhere, namely the 18A chip and a possible partnership with Taiwan Semiconductor. So thank you, James. I am paying attention.”

“I'm concerned about those windmills and solar panels replacing half of our coal, natural gas and nuclear power plants. We're becoming too dependent on the weather,” a reader writes after yesterday’s “Blackout Nation” edition.

In early 2021, Texas suffered a major blackout — its power grid failed when a blizzard hit the state. A foot of snow covered those solar panels, blocking off all sunlight; the windmills all froze; and the (fossil-fueled) backup system failed because it couldn't handle the sudden demand.

“Those windmills are or were killing the whales at the Jersey Shore. I hear the Green New Scam is in full swing in New Jersey — ‘100% green energy’ — which might explain the power failure the other night and the next day. God help us if America suffers a blackout like the one that hit Spain and Portugal.”

Dave responds: We share your concern. Your editor bought a generator for essential loads in mid-2022 after the regional grid operator in my neck of the woods warned of rolling blackouts in the event of extreme summer heat.

We’ve been spotlighting the fragility of the grid in these pages ever since — even more once it became apparent that AI would become “the monster that ate the grid.”

Here’s a startling new stat I encountered just today, courtesy of the energy journalist Robert Bryce: According to S&P Global, U.S. electricity demand will grow 25% by 2030. The only possible way to meet that demand is with crash construction of natural gas-fired plants.

Rest assured we’ll stay on top of the story — both the resilience-of-the-grid angle as well as the companies and sectors best positioned to meet that demand and deliver their investors outsized gains.

“The Fed’s Unintended Comedy” reads the subject line of our final reader email today.

“Sean Ring's recognition that the Fed program of bond buying is labeled SOMA. Recall that in the book Brave New World, they use a happiness-inducing drug called soma to placate the population.

“Ironically, the Fed's program with an acronym of SOMA (among many others) is being used to placate the current system. As DOGE found out, all fiscal spending is absolutely critical (at least to those who receive it). So the population screams at any attempt to rein in spending as we blissfully race toward the fiscal cliff.”

Dave: Yeah, and it’s not as if either party in Congress is going to do anything about it…

It would be nice if we had a press in this country that served its watchdog function and tried to hold House Speaker Mike Johnson to account, but clearly that’s too much to ask…

Best regards,

Dave Gonigam
Managing editor, Paradigm Pressroom's 5 Bullets