Future Gold Prices

The internet is filled with predictions for the price of gold, from $500 to $50,000 per ounce.  It depends on your world view.

If you are a central banker or a powerful financial player which often supplies loyal employees to serve as Secretary of the U.S. Treasury, the low gold numbers look good.

Or, if you understand the incredible $200+ Trillion of debt the world has accumulated and realize it can’t be repaid, then gold at $10,000 probably looks inevitable.  Crashes occur and sovereign debt markets look like paper bubbles with disastrous potential to send gold much higher.

A better approach to estimating future gold prices, in my opinion, is to start with a world view and project relevant gold prices.  I suggest three simple scenarios, as I stated in my article, “Silver Prices in Five Years?

Scenario One – status quo:  The next five years could look much like the last 20 – 40 years.  Politicians spend too much money, debt expands exponentially, central banks monetize debt and desperately inflate and reflate bubbles to maintain their power and continue the transfer of wealth from the many to the few.  This is “status quo” or “more of the same” and indicates that gold prices will rise substantially, but not in a hyperinflation.

Scenario Two – deflationary crash:  Deflationary forces overwhelm the financial system and central bankers and politicians can’t or won’t reverse those deflationary forces.  In that scenario most paper assets crash while the purchasing power of gold increases far more.  Central bankers will do almost anything to avoid this scenario.

Scenario Three – deflation and hyperinflation:  Deflationary forces temporarily crash the financial system (signs are visible in 2016-Q1), and eventually central bankers and governments inflate currencies, possibly to hyperinflationary levels in their heavy-handed reaction.  In this scenario gold prices will go into the stratosphere – perhaps $5,000 or $50,000+ per ounce.  The ultimate gold price in a hyperinflationary scenario is unpredictable since hyperinflationary forces feed upon themselves and destroy purchasing power unpredictably.  Gold reached nearly 100 trillion Weimar Marks per ounce in 1923.  Gold, if currently priced in 1945 (pre-devaluation) Argentina pesos would be over 10,000 trillion 1945 pesos.  Hyperinflation is an ugly, destructive, and unpredictable process, even for a reserve currency.

In Scenario One – more of the same – we can reasonably expect:

Politicians and central bankers will manage the crisis of 2016-2017 as they have most other crises (such as 1987, 1998, 2000, 2008) by increasing spending, addressing an excess debt problem with even more debt, and pumping more “funny money” into the global financial system.

  1. Official US national debt increases more rapidly than its typical 9% per year compounded rate. (perhaps 10 – 12% per year)
  2. Dollars, euros, yen and other currencies devalue against each other and against real assets. (currency wars)
  3. Stock markets collapse further, and then, buoyed by central bank “printing” and currency devaluations, will rise.
  4. Depressed commodity prices will move much higher as currency devaluations are aggressively pursued by central banks.
  5. People and investors eventually realize that currencies are devaluing and they must avoid over-valued bonds, negative interest rates, crashing stock markets, and paper promises to preserve their savings. Gold prices will rally much higher based on increased investor demand in a supply constrained market.

Given the above “status quo” scenario, the VALUATON model I described in my book, “Gold Value and Gold Prices From 1971 – 2021” is relevant.  The model is based on three variables, the official US national debt, the price of crude oil, and the S&P 500 Index.  I used prices smoothed with moving averages since 1971 to define the basic trend of gold prices.  The correlation of the calculated gold (using smoothed prices) with the actual smoothed annual prices was about 0.98 since 1971.

D-Gold and Calc Gold-Version2

This valuation model works well within a broad range of economic conditions, including stock and bond bull markets, bear markets, crude oil bubbles and crashes, various forms of Quantitative Easing, Democratic and Republican Presidents, wars, and occasional peace.

Using “status quo” assumptions for future increases in official national debt and crude oil, and a collapsing S&P 500 Index, I created the following graph of “calculated gold” for the next several years.

B-Gold High Future

This is a model based on reasonable assumptions but there is no guarantee those assumptions will be fulfilled.  Strange and unexpected events have unfolded in the past decade.  Examples:

  • In 2007 few expected the S&P 500 to fall below 700.
  • Who expected seven years of essentially zero interest rates in the US after the 2008 crisis?
  • Three years ago who would have predicted that in excess of $7 Trillion in sovereign debt in 2016 would yield “negative interest?”
  • Who in 2013 would have predicted sub-$30 crude oil?

My Point is:

  1. Strange and unpredictable events occur in a central banker controlled world dominated by overwhelming debt.
  2. Secondary and tertiary consequences of stupidity, wars, QE, ZIRP, and negative interest rates are difficult to predict.
  3. A deflationary collapse and hyperinflation are perhaps as likely as the four strange and unexpected examples above.
  4. Gold prices in a deflationary collapse or hyperinflationary blow-off are difficult to imagine.
  5. The more likely expectation, in my opinion, is a continuation of the “status quo” financial conditions we have experienced since 1971.

The model suggests that a reasonable “status quo” valuation for gold in 2021 is around $3,000.  Prices will fall below and occasionally spike much higher than the valuation so a gold price of $5,000 in 2020 – 2022 is plausible.  This is not a prediction!  It is based on the observation that central banks devalue their currencies, governments spend to excess, and those actions affect the prices for crude oil, stocks, commodities, and gold.  The model suggests that central bank devaluations and government actions could push gold prices to $3,000 to $5,000 in roughly five years, as central bank devaluations and government actions have pushed gold prices from about $40 in 1971 to about $1,200 in 2016.

CONCLUSIONS:

  • How crazy will it get? The future price of gold is very much dependent upon the reactions of governments and central banks regarding the current deflationary forces.
  • Status quo response: $3,000 – $5,000 per ounce is quite possible at some time in 2020 – 2022, if not sooner.
  • Deflationary crash response: Gold will substantially increase in purchasing power, but its price in dollars, euros, yen, etc. is difficult to estimate, depending upon the economic damage that occurs.
  • Hyperinflationary response: The price of gold will be unbelievably high.

 

I encourage you to purchase my book, “Gold Value and Gold Prices From 1971 – 2021.”  It describes my empirical gold model.  That book is available for $11.00 in paperback at www.gechristenson.com and Amazon.  E-books are also available.

Protect your assets.  Purchase physical gold and silver from Tom Cloud or Roxanne Lewis.

 

Gary Christenson

The Deviant Investor

 

 

13 thoughts on “Future Gold Prices

  1. Some people in the USA will riot sure, but not all of them. The rest will be too occupied with consuming the “bread and circuses” that have been created solely to keep them docile and controlled by the powers that be. Think to yourself for a minute, what would the common welfare recipient do, go out and riot and bite the hand that feeds them, or stay at home and watch the daily lineup of Big Brother, Keeping up with the Kardashians and American Idol? If you think for a minute that the masses either know enough about or even care about the gold prices, to warrant going out and trying to get their piece of gold before the government denies them that freedom completely? Gold and silver have been real money for the last 5000 years yes, but there was no TV or Internet in the last 5000 years either. What do you think most people will value more? Gold, or a reliable wifi connection? Good and silver in these modern times are really only for 2 different types of people. On one hand you have the Wall Street casino speculators and on the other hand, you have the contrarian investor like you or I. How much will gold benefit either of us in the long run when gold is no longer valued in fiat currency but in fact other tangible assets such as land, food, water, salt, sugar, vinegar and so on and so forth? Ponder that question for a while and tell me what your thoughts are.


    • “gold or a reliable wifi connection” puts perspective on it. Yes, American Idol, while it lasts, will probably attract more attention than gold. If we go post-apocalyptic than all bets are off, but the powers-that-be do not want to lose everything in a post-apocalyptic world and my bet is massive trauma but not total destruction. Gold, silver and truth will – eventually – survive and thrive. My opinion…
      The Deviant Investor



  2. Yea, Sure Dave. As soon as they can get the fork lift to come
    over to pick up their fat asses and take them to the demonstration.
    America is over fed and dumbed down to the point of not recognizing
    what is taking place right in front of them. Present company excluded.


  3. I agree with Robert, the U.S. can just step in and fix gold prices at a maximum cap. Or they can seize it outright like FDR did. I’ve also read that the gov’t can levy a tax that makes it too expensive for citizens to buy gold. These are even worse case scenarios since we’ll be stripped of buying gold for protect wealth. I’ve heard over at ZH that the Indian gov already makes it hard for people to buy gold.


  4. Gary, you listed all possibilities except for one: Free markets will be completely abolished and prices will be determined by government the same way it was done under communism in former Soviet Union. In fact, this scenario is not that impossible. The US economy has a long history of financial and economic regulation which partly explains many problems in our economy. Why not take the ultimate step and regulate all economic prices by state decree ? It was already done in WWII. So it could be done again. That would give us at least another 20-30 years of breathing room before things disintegrate completely.

    The former Soviet Union collapsed peacefully simply because everybody involved understood that the economic model pursued did not work. The economy could not even produce enough food for its own people. In the Soviet Union, the price of gold was low, but nobody could buy any gold simply because it was not available. More generally, in communism everybody had plenty of money and prices were all cheap, but unfortunately, shops were always empty.

    If this scenario unfolds, then the price of gold will be frozen at present levels, but most likely the market for precious metals in general, will dry up in the long run.



    • I only believe what is real, cash is still king, in my world it always was.
      Gold was fixed at $ 42 bucks, everything is fake , [ fiat ] doesn’t count in my world.
      When gold was at the 1900 range it was fiat ,not real.

      The horse and buggy was ? The out house was ? Gold and Silver was money.
      That’s History. I do know one thing , no one can purchase gold without cash.
      Cash is king, Money talks and Bull ^%$# walks.

      silverbill


    • If you think for one minute that the people in the US are going to stand by and watch their EBT cards go away when the “shops are empty of food,” think again. Your scenario is of a people who were at the mercy of their govt. This country is far from the old soviet union. They will riot at the drop of a hat.


    • “In fact, this scenario is not that impossible”. Robert, how many people that read this comment, including yourself when you proofread it before you posted it, do not realize that what is currently going on in the country of Venezuela as we speak, is the exact same situation you just described about the former Soviet Union? If any of you want a modern day real world example of this “scenario”, look at the economics of Venzuela right now. Better yet, start talking to people either living there now, or people who have somehow managed to escape with their lives intact. What’s happening there right now is the very one and the same scenario you just described. Why do you think 10000s of Venezualians are running for their lives as fast as they possibly can away from it!


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