Best of the Week
Most Popular
1.Bitcoin War Begins – Bitcoin Cash Rises 50% While Bitcoin Drops $1,000 In 24 Hours - Jeff_Berwick
2.Fragile Stock Market Bull in a China Shop -James_Quinn
3.Sheffield Leafy Suburbs Tree Felling's Triggering House Prices CRASH! - Nadeem_Walayat
4.Bank of England Hikes UK Interest Rates 100%, Reversing BREXIT PANIC Cut! - Nadeem_Walayat
5.Government Finances and Gold - Cautionary Tale told in Four Charts - Michael_J_Kosares
6.Gold Stocks Winter Rally - Zeal_LLC
7.The Stock Market- From Here to Infinity? - Plunger
8.Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - MarketsToday
9.Electronic Gold: The Deep State’s Corrupt Threat to Human Prosperity and Freedom - Stewart_Dougherty
10.Finally, The Fall Of The House Of Saud - Jim_Willie_CB
Last 7 days
Some Traders Hit. Some Traders Miss. Here's How to be Part of the 1st Group - 22nd Nov 17
Geopolitical Risk Highest “In Four Decades” – Global Gold Demand to Remain Robust - 22nd Nov 17
Relationship between Crude Oil Price and Oil Stocks - 22nd Nov 17
Harry Dent’s Gold Prediction Invalidated - 22nd Nov 17
Gold Sector is On a Long-term Buy Signal - 21st Nov 17
Saudi Arabia and Israeli Alliance Targets Iran - 21st Nov 17
What History Says for Gold Stocks in 2018-2019 - 21st Nov 17
US Bond Market Operation Twist by Another Name and Method? - 21st Nov 17
Learning from Money Supply of the 1980s: The Power and Irony of “MDuh” - 20th Nov 17
Trump’s Asia Strategy, Goals and Realities - 20th Nov 17
Crude Oil – General Market Link - 20th Nov 17
Bitcoin Price Blasts Through $8,000… In Zimbabwe Tops $13,500 As Mugabe Regime Crumbles - 20th Nov 17
Stock Market More Correction Ahead? - 19th Nov 17
Universal Credits Christmas Scrooge Nightmare for Weekly Pay Recipients - 18th Nov 17
Perspective on the Gold/Oil Ratio, Macro Fundamentals and a Gold Sector Bottom - 18th Nov 17
Facebook Traders: Tech Giant + Technical Analysis = Thumbs Up - 18th Nov 17
Games Betting System For NCAA Basketball Sports Betting - Know Your Betting Limits - 18th Nov 17
Universal Credit Doomsday for Tax Credits Cash ISA Savers, Here's What to Do - 18th Nov 17
Gold Mining Stocks Fundamentals Q3 2017 - 17th Nov 17
The Social Security Inflation Lag Calendar - Partial Indexing - 17th Nov 17
Mystery of Inflation and Gold - 17th Nov 17
Stock Market Ready To Pull The Rug Out From Under You! - 17th Nov 17
Crude Oil – Gold Link in November 2017 - 17th Nov 17
Play Free Online Games and Save Money Free Virtual Online Games - 17th Nov 17
Stock Market Crash Omens & Predictions: Another Day Another Lie - 16th Nov 17
Deepening Crisis In Hyper-inflationary Venezuela and Zimbabwe - 16th Nov 17
Announcing Free Trader's Workshop: Battle-Tested Tools to Boost Your Trading Confidence - 16th Nov 17
Instructions to Stop a Dispossession Home Sale and How to Purchase Astutely at Abandonment Home - 16th Nov 17
Trump’s Asia Tour: From Old Conflicts to New Prospects - 16th Nov 17
Bonds And Stocks Will Crash Together In The Next Crisis (Meanwhile, Bond Yields Are Going Up) - 16th Nov 17
A Generational Reset That Will Redistribute Wealth to the Bottom 60% Is Near - 16th Nov 17
Ethereum (ETH/USD) – bullish breakout of large symmetrical triangle looks to be getting closer - 16th Nov 17
Gold’s Long-term Analogies - 16th Nov 17

Market Oracle FREE Newsletter

Traders Workshop

Gold $10,000 May Be Reasonable; Or Wishful Thinking; Or Meaningless

Commodities / Gold and Silver 2017 May 17, 2017 - 08:10 AM GMT

By: Kelsey_Williams

Commodities

Is $10,000 gold reasonable?

Right now, from gold’s current price point of $1240.00 per ounce, we are speaking of an eight fold increase to get to that gloriously celebrated (at least by some) number.  Even if the specific price target is more modest – say $7000.00 per ounce – it is still a huge jump from where we are today. 

It is, however, a reasonable possibility.  Between August 1976 and January 1980, gold rose from $100.00 per ounce to over $800.00 per ounce.


More recently, an increase in gold from $275.00 per ounce in 2000 to its eventual all-time high of $1900.00 per ounce in 2011 translates to a seven fold increase.

There are some key things which differentiate the two examples. But the simple absolutes indicate that a $10,000 price objective for gold is not unreasonable, at least on a percentage-increase basis.

However, some of the differentiating specifics from the two examples are also applicable to scenarios which might lead to $10,000 gold.

One is timing.  In the first example gold had already risen from $40.00 per ounce in 1971 to close to $200.00 per ounce in February 1974.  After hitting a retracement low of $100.00 per ounce in August 1976, gold rose to $850.00 per ounce in January 1980.  That’s less than three and one-half years.

In the second example the seven fold increase took place over an eleven year period.  The low point of $275.00 per ounce was twenty years past its previous all-time high of $850.00 per ounce and was its ultimate low point before it began its decade-long run to $1900.00 per ounce.

Both periods were similar in total length (about ten years).  In the second example, if the $650.00 per ounce retracement low in 2008 is used, then the timing becomes more comparatively similar to the first example of the 1970s decade.  What changes is the magnitude of the move cited.

The timing of both examples would run similarly in length – approximately three years (August 1976 to January 1980; August 2008 to August 2011.  But now the percentage increase for the second example becomes three fold ($1900.00 divided by $650.00) rather than seven fold.

And if we compare both periods in their entirety (1971-1980; 2000-2011) the numbers are even more dramatically different.  In the earlier decade the price increase in gold was from $40.00 per ounce to $850.00 per ounce.  That is a twenty-one fold increase. And it is three times greater than the seven fold increase in the latter decade.

Question:  Where are we now?  If we accept that $10,000 gold is a reasonable number (with some caveats), when might that happen?

The high point for gold in 2011 at $1900.00 per ounce occurred nearly six years ago.  And that high point was achieved in concert with a decade-long decline in value of the US dollar.

Since 2011, however, we have had nearly six years of declining gold prices accompanied by a stronger U.S. dollar.  Will the low of $1040.00 per ounce in January 2016 (and subsequent reversal in direction of both gold and the U.S. dollar) prove to be the point we measure from when comparing gold’s next move to much higher levels?  Or, is there a lower number still to come?

There were twenty years separating the two decades we have reviewed.  If we allow for something similar now, it is possible that gold might not reach its next low point relative to the U.S. dollar until 2030.  (please note: that is not a prediction)

Also, there was a thirty year span between the 1980 peak price of $850.00 and the 2011 high point of $1900.00.  That might imply (very loosely) that the next ultimate high point for gold could be as far off as 2040.

With these possibilities in mind, $10,000 gold anytime soon might just be wishful thinking.

Another specific is the Federal Reserve.  Having had the opportunity and time to ply their trade again and again, the sorcerers at the central bank continue to find favor with the gods of paper money.  At least this is so, when the basic objective and standard of measurement is to avoid complete financial and economic disaster.  There is a difference between the ‘highway to hell’ and burning eternally at the destination.

‘What we don’t know’ is a variable with infinitely spectacular implications.  What we don’t know includes: the actual size and extent of the Fed’s balance sheet; anything which the Fed hasn’t told us; potential surprise announcements by the Fed or the government (confiscation of assets, bank holidays, etc.).

Has the Fed lost control? It is a possibility.  But the financial markets don’t think so. Yet.

If events unfold in such a way as to create the ‘perfect storm’, then $10,000 gold could be a reality much sooner, rather than later.  But the price quote may be meaningless.  Here’s why.

Any combination of events which leads to $10,000 gold within a relatively short time frame would also be accompanied by declines of similar magnitude in the value of the U.S. dollar. This means that credibility of the dollar and desire to hold it would drop to horrendously low levels.

The flow of goods and services would be affected negatively if people were unwilling to accept U.S. dollars in exchange for their items of trade. If it becomes bad enough, a complete repudiation of the U.S. dollar might occur.  That is a worst case scenario, but it needs to be considered if you think gold is your ticket to riches.

At a time like that, $10,000 gold (or any U.S. dollar price of gold) becomes meaningless.  What becomes critical is not the price of gold, but how much gold you own.

And in what form.  Gold stocks, ETFs, and futures contracts are all paper products with ties to the metal which would be tenuous at best given the conditions that would likely accompany the lack of a functional currency.

If you are a trader/investor who expects $10,000 gold, it might be a good idea to reevaluate your expectations with respect to timing, conditions (known and unknown), implications, and form of ownership.

Owning physical gold is a means of preserving wealth. Gold is original, real money. It is a store of value. (see Gold Is Real Money)

Gold’s price is a reflection of the long-term decline of the U.S. dollar.  The two are inversely correlated. (see Gold: It’s All About The U.S. Dollar)

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2017 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2017 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife