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Gold price reaction if oil hits $150 as the World Bank warns? Rich Checkan weighs in

Gold has seen gains of more than $160 in the last month as tensions in the Middle East continue to escalate following the Hamas attack on Israel on October 7. However, if a third player gets involved in the conflict, the gold price will experience a much more dramatic move higher, according to Rich Checkan, President and COO of Asset Strategies International.

Gold has surged towards the $2,000 an ounce level from the $1,840 level in the wake of the Israel-Hamas war, with the geopolitical war premium in part driving the rally. However, this could be just the beginning if the conflict spills over and gets other actors involved, Checkan told Kitco News on the sidelines of the New Orleans Investment Conference.

“If a state agency gets involved directly in the conflict, not through proxies, I see gold going up dramatically,” Checkan told Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News. “We could see $2,200 an ounce. But I don’t see it going significantly higher unless another state player gets directly involved.”

The World Bank has issued a warning that if tensions in the Middle East continue to escalate, oil prices might soar to $150 a barrel under one of its worst-case scenarios. “The latest conflict in the Middle East comes on the heels of the biggest shock to commodity markets since the 1970s – Russia’s war with Ukraine,” said Indermit Gill, chief economist at the World Bank. “That had disruptive effects on the global economy that persist to this day.”

To get Checkan’s gold price outlook in this scenario, watch the video above.

The Fed, its unrealized losses, and why the U.S. can’t service its debt

After holding rates steady for the second meeting in a row, the Federal Reserve can’t raise rates much further, Checkan said.

“The U.S. government can’t service the debt. The debt is $33.5 trillion. They can’t pay the interest on that right now. Fed Chair Jerome Powell is hoping he can talk tough long enough. But I don’t think he’s got the ammunition to make [inflation] come under control at this point,” he said. “The Fed has broken the bank balance sheets, bank’s balance sheets, and they’re breaking the back of the middle class right now,” Checkan noted. “When they go to refinance this debt, that’s when it all hits the fan.”

The Fed has changed the way it categorizes losses, but it doesn’t mean it is not a real loss. To hear Checkan’s take and why the damage is not fixable, watch the video above.

Economic pressures forcing some middle-class investors to sell gold.

With rates high and credit card debt climbing as well, Checkan pointed out that the consumer is getting weak, and people are resorting to selling their gold at these higher levels to raise cash for short-term needs.

“What we’re starting to see is middle-class investors selling off gold — a liquid asset. They are not selling it off completely, but they’re selling off enough to cover short-term needs,” Checkan pointed out.

According to the World Gold Council, the gold bar and coin demand is down 14% in the third quarter of this year. Checkan added that this category is a reflection of what the American middle class is doing with their gold investments.

Source: Kitco