Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Russia Buys 300,000 Ounces Of Gold In March – Nears 2,000 Tons In Gold Reserves - 24th Apr 18
Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - 24th Apr 18
CRYPTOCURRENCY MASTERCLASS #CRY90 - 24th Apr 18
UK Gambling Statistics - What the Numbers Say - 24th Apr 18
Chaos Capitalists Short Countries - How Chanos Got China Wrong - 24th Apr
Artificial Intelligence Defines the Political News Narrative - 24th Apr 18
Stock Market "Oops, They Did It Again" - 24th Apr 18
Fox in the Henhouse: Why Interest Rates Are Rising - 23rd Apr 18
Stocks and Bonds, This is Not a Market - 23rd Apr 18
Happy Anniversary Silver Investors! - 23rd Apr 18
The Hottest Commodity Play In 2018 - 23rd Apr 18
Stock Market Correction Turns Consolidation - 23rd Apr 18
Silver Squeeze, Gold Fails & GDX Breadth - 23rd Apr 18
US Economy Is Cooked, the Growth Cycle has Peaked - 23rd Apr 18
Inflation, With a Shelf Life - 23rd Apr 18 - Gary_Tanashian
Stock Market Predictive Modeling Is Calling For A Continued Rally - 22nd Apr 18
SWEATCOIN - Get PAID to WALK! Incentive to Burn Fat and Lose Weight - Review - 22nd Apr 18
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

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.


© 2005-2018 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

6 Critical Money Making Rules