What’s next for gold? Seems like a fairly simple question. Unfortunately, it is nearly impossible today to get a simple answer. That’s the problem.
Gold
Predicting The Price Of Gold Is A Fool’s Game
PREDICTING THE PRICE OF GOLD
It is frustrating at times to see the attention focused on predictions for the price of gold. The more sensational and spectacular the price forecast, the greater the cacophony.
It is worth taking a look back at a few of these predictions to help put things in perspective.
HEADLINE: Gold Forecast $6000, And Gold Mining Analysis Through Visualisation 23Jan2012
Quote: “If the current gold bull market was to follow the timing and extent of the 70s bull market, the gold price would reach $6000 before 2014.”
Gold price on 23Jan2012: $1679.00 per oz.
Gold price on 14Mar2014: $1382.00 per oz.
Gold price on 31Dec2014: $1181.00 per oz.
How far off base can a price prediction be? Not only did gold not reach the target price, it went in the opposite direction – beginning that same month – and proceeded to decline by thirty percent over the next two years, ending at $1205.00 per ounce on December 31, 2013.
The problem is not the plausibility of $6000.00 gold. It is very plausible, and possible; maybe even likely. However, the prediction was specifically time oriented and horrendously misjudged in terms of direction and timing.
All that is excusable. Unless you are the proprietor of a subscription service and/or making investment recommendations to others, or dispensing trading advice.
HEADLINE: JPMorgan Forecasts Gold $1,800 By Mid 2013 01Feb2013
Quote: “JPMorgan Sees Gold At $1,800 By Mid 2013 As South Africa “In Crisis” And “Escalating Instability” In Middle East J.P. Morgan Chase & Co. said gold will rise to $1,800 an ounce by the middle of 2013, with the mining industry in South Africa “in crisis,” according to Bloomberg.“
The price of gold on the date the headline appeared was $1667.00 per ounce. Five months later on June 29, 2013, the price of gold was $1233.00 per ounce.
The call for $1800.00 gold was a ‘safe’ prediction. Only an eight percent increase from the existing (then) level of $1667.00 would have resulted in a gold price of $1800.00.
But, as in the previous example, the price went south with a vengeance; this time dropping twenty-six percent in five short months.
HEADLINE: Trump Win Signals $1,500 Gold… 10Nov2016
Quote: “A Trump US presidential victory signals US$1,500 an ounce for gold…in the intermediate term.”
Gold price on 10Nov2016: $1258.00 per oz.
Gold price on 31July2017: $1268.00 per oz.
Apparently gold did not see the ‘signal’ since its current price is nearly identical to its price on the day the prediction appeared in print just after the elections last November.
And what does the writer mean by “intermediate term”? The longer the time frame, the less value in the prediction. The projected dollar increase amounts to twenty percent. If it takes two years, that amounts to roughly ten percent annually. In that case – or if it takes longer than two years – is it worth the bold-face headline?
HEADLINE: Trump to Send Gold Price to $10,000 10Nov2016
Gold prices and dates are the same as in the above example. With gold right where it was ten months ago, when might we expect some progress towards that price objective?
A price prediction of this magnitude deserves a more complete analysis and evaluation. See $10,000 Gold May Be Reasonable; Or Wishful Thinking; Or Irrelevant .
The more outlandish price predictions usually center around a breakdown or collapse of the monetary system. The breakdown occurs as a result of complete repudiation of the U.S. dollar after decades of value depreciation. People simply refuse to accept and hold U.S. dollars in exchange for their offered goods and services.
Now suppose at that time you own gold. Would you sell it? At what price? For how many worthless U.S. dollars would you part with an ounce of gold?
If someone offered you one billion monopoly dollars for an ounce of gold today, would you take it? How about ten billion?
Okay, so what if we see a precipitous decline in the value of the U.S. dollar over the next several years? Lets say that decline amounts to a loss in purchasing power for the dollar of fifty percent from current levels. This would equate to a gold price of approximately $2500.00 per ounce, a doubling from current levels.
This is valid if gold and the U.S. dollar are at equilibrium currently (I think they are). In other words, the current price of gold at $1250/60 is an accurate reflection of the cumulative decline in the value of the U.S. dollar since 1913.
The fifty percent decline in the purchasing power of the U.S. dollar would be reflected in higher prices for other goods and services; a pattern which has become all too familiar over the past one hundred years.
If there is a functioning market, and assuming you sell some gold and take profits, how much more will it cost for whatever else you might decide to buy? Do you really think you will be able to buy other items of value at ‘discounted’ prices at that time?
Gold, in 1913, was $20.00 per ounce. Currently it is $1260.00 per ounce. That is an increase of more that sixty-fold. But it does not represent a profit. Because the general price level of goods and services today – generally speaking – is sixty times higher than it was in 1913.
There are times when you can profit from sharp moves in gold in short-term situations. Generally, these are just before major movements in its U.S dollar price that reflect a realization of the cumulative decline in purchasing power of the dollar. And, to a lesser extent, recognizing when the expectations of others take the gold price well beyond equilibrium vs. the U.S dollar.
In 1999/2000 gold hit price lows of $250-275.00 per ounce. Soon thereafter it embarked on a decade long run culminating in a peak price of close to $1900.00 per ounce in 2011.
After its peak in 2011, gold declined over the next five years to a low of just above $1000.00 per ounce. A short-lived rebound in early 2016 brought it back to near current levels ($1200-1300.00) where it has generally remained without breaking either up or down to any significant degree.
Where were all these ‘experts’ in 1999/2000 and what were they predicting then?
And since 2011/2012? They have been saying pretty much the same thing over and over again. Buy now! Buy more! Before its too late!
One day, it WILL be too late. But it is more a matter of financial survival now than ever before. The obsession with profits, predicting and trading has obscured the real fundamentals.
And one way or another, most people’s profits are likely to go up in smoke before they do anything meaningful with them.
Gold – physical gold – is real money. It is real money because it is a store of value. And its value is constant. The U.S. dollar’s value continues to decline over time. The constantly declining value of the U.S. dollar and people’s perception of it, as well as their expectations for it, determine the price of gold.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
Only One Fundamental For Gold
ONLY ONE FUNDAMENTAL FOR GOLD
There have been several articles recently proclaiming and detailing the fundamentals for gold. A few of them have some excellent points. Most of them don’t. And there have been some polite discussions of applicability, meaning, and intent with regards to specific claims.
Some of the discussions involve protracted technical analysis and are quite lengthy. And some analysts have a special formula or barometer of their own, which they use to justify their claims or indicate correlation between gold and a wide variety of unrelated items.
There are commonly accepted – sometimes erroneous – statements of fact and also convoluted explanations which are unclear and long-winded.
A bit of brevity might help. The definition of fundamental is as follows:
“a basic principle, rule, law, or the like, that serves as the groundwork of a system; essential part…”
There is only one basic fundamental that needs to be known about gold: Gold is real money.
GOLD IS NOT AN INVESTMENT
To further clarify, this means that gold is not an investment. Nor, is it a hedge against inflation or deteriorating world conditions. It is also not insurance; or a commodity with special attraction; or a barbarous relic.
Do people view gold as an investment? Absolutely. Which is why they are continually surprised and confused at their investment results. They buy gold (invest in it) because they expect the price to go up; which is logical.
The problem is that the premise is wrong. When someone invests in gold, they are expecting the price to go up as a result of certain factors which they believe are “drivers of gold”. In other words, they believe that gold responds to certain factors. These factors include interest rates, social unrest, political instability, government policies/actions, a weak economy, jewelry demand, and various ratios comparing gold to any number of other things.
But, again, that assumes that gold is an investment which is affected by the various things listed. It is not.
Have you ever “invested” in money? More specifically, when was the last time you called your financial advisor and placed an order for U.S. dollars?
Gold is quoted in U.S. dollars and the dollar is the world’s reserve currency. The ‘price’ of gold in U.S. dollars is an inverse reflection of the value of the U.S. dollar. The changes in price are continuous and ongoing. Confidence (or lack of it) and expectations (realistic or not) plays a part.
There are more extreme changes for shorter periods of time which don’t correlate exactly to changes in purchasing power of the U.S. dollar. But the most extreme changes occur after longer periods of time when the cumulative effects of inflation are recognized more fully by holders of the depreciating paper currency (i.e. U.S. dollar). And, since paper currencies and credit can be manipulated by government, expectations and reactions become more volatile.
Without a clear understanding of the above paragraph, we will continue to see unexpected results which defy our logic if we ‘invest’ in gold as a “hedge against the chaos and resulting breakdown of society”; unless that chaos results in a significant decline and/or breakdown of the U.S. dollar itself.
VALUE OF GOLD
If gold is real money, and not an investment, then what determines its value? Its value is in its purchasing power. Gold, or any other money, is worth what we can buy with it. And gold’s designation as ‘real’ money is precisely because it is a store of value.
Gold is original money. It was money long before the U.S. dollar. And it will still be money after the U.S. dollar meets its inevitable end.
By definition, if someone does not believe that gold is real money, then they are saying that something else is. And that is why it is difficult for most people to understand and analyze gold.
Most people tend to equate money with wealth and abundance. This leads to placing value on things in terms of how many dollars an item is worth. Viewed this way gold seems to hold no value unless it is continually rising in price according to our own expectations and investment logic.
When gold is viewed and treated as an investment, it complicates things.
Applying investment logic to gold leads to erroneous conclusions. Gold does not react or correlate with anything else – not interest rates, not jewelry demand, not world events.
CHANGES IN GOLD’S PRICE
Changes in gold’s price are the direct result of changes in the value of the US dollar. Nothing else matters.
Insisting that interest rates (either nominal or ‘real’) affect the price of gold is incorrect. As far as gold is concerned, it does not matter what is happening to interest rates. It might matter to the U.S. dollar.
Whether interest rates – real or nominal – are rising or declining does not impact the price of gold. Changes in the value of the U.S. dollar do.
This is true of all the other factors which people assume have an impact on the price of gold, too. It is the U.S. dollar – and only the U.S. dollar – that causes changes in the price of gold.
Historically, there is no period of time of any consequence in the last one hundred years, wherein the price of gold in U.S. dollars rose when the value of U.S dollar was not declining. The inverse is also true. Periods of decline in gold’s price were reflected inversely in the rising value of the U.S. dollar.
All of this is in the context of an intentional, century-long decimation of the U.S. dollar’s value by the Federal Reserve and the U.S. Government.
Inflation is caused by government. The effects of that inflation show up gradually, generally, in the form of rising prices for goods and services. Since the U.S. dollar is a substitute for real money (i.e. gold) it is particularly vulnerable to the effects of the government’s inflation.
The US dollar has lost more than ninety-eight percent of its value over the past one hundred years. The price of gold (real money) reflects that decline in value at $1220.00 per ounce. Otherwise, gold would still be at $20.00 per ounce (or close to it) and would be equal in value to $20.00 in U.S. currency as was the case in 1913 when the Fed “was born”.
The U.S. dollar is terminally ill. It cannot be saved; only sustained. The Federal Reserve knows this. This is why the ‘can’ of responsibility is always kicked down the road.
(also see: History Of Gold As Money)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
Gold-Silver Ratio: Debunking The Myth
A 16-to-1 gold to silver ratio has been the Holy Grail of some silver investors since the mid-sixties.
Unfortunately, fifty years later, it is a quest that continues unabated without success.
In fact, there is evidence that contradicts and widens the chasm that separates wishful thinking from reality.
Gold Vs. Gold Stocks – Just The Facts, Ma’am
GOLD VS. GOLD STOCKS
“…but what I do know is the people running the company are practically married to their shareholders and investors, like you.”
That’s good to know. After two decades of sharing their bed(s) with investors “like you” since the honeymoon period and birth of gold’s bull market in 1999/2000, the management of this particular gold mining company is still committed. And, presumably, other companies’ managements are similarly committed. Are you?
$10,000 Gold May Be Reasonable; Or Wishful Thinking; Or Meaningless
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 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.
How Much Is Gold Worth?
Just how much is gold worth? Lots of varying opinions, but is there a consensus?
Everyone has an opinion as to what something is worth, whether the object of consideration is their home, a late grandfather’s pocket watch, or a specific stock.
The price of a specific item or asset at any given time is a reflection of all those varying opinions.
Some are based on fundamentals, some are based on technical factors. But the combination of all the opinions, and the resulting expectations (some expect the price to go up, others expect it to go down or remain the same), plus all of the other known factors at the time that might possibly impact the price, provide us with the clearest possible indication of current value for the item in question: its market price.
If we believe that gold is money, we might have a different opinion or expectation than someone who sees gold as an investment; or someone else who deems gold to have no useful value.
If we don’t believe that gold is money, then we are saying that something else is. That something else, practically speaking, is fiat, paper currency issued by a government or central bank (dollars, euros, yen, etc.).
With that in mind, let’s rephrase our original question: “How much is money worth?”
In the simplest of terms, money is worth whatever it can be exchanged for. This means that the value of money is in its purchasing power.
With that fundamental understood, the logic leads to a clean and simple statement: Gold, or any other money, is worth what we can buy with it.
So, what can we buy with it? And how do we know that our gold/money is realistically priced?
With gold currently priced at $1750 oz., the value of gold today is what we can buy with seventeen hundred fifty dollars.
But, is $1750 oz. an accurate reflection of gold’s purchasing power? Are there reasons why we might expect that price to rise or decline to any substantial degree that would influence our choice to hold money in gold vs. US dollars?
Let’s go back to a time when the US dollar and gold were both money and equal in value (i.e., purchasing power).
SOME GOLD PRICE HISTORY
In 1913, both gold and US dollars were legal tender, and interchangeable. Either was convertible into the other at a fixed price. A one ounce (.9675 ounces) gold coin was equal to twenty US dollars and vice-versa. (note: the official gold price was $20.67 per ounce, which multiplied by .9675 ounce of gold in a gold coin equals $20.00).
On the surface, it would seem that one ounce of gold over the past century has increased in value by eighty-four hundred percent ($20.67 in 1913 vs $1750 today). If that is true, we should be able to buy eighty-five times as much with one ounce of gold today as we could in 1913. However, that is not the case.
We said earlier that the value of money is what we can buy with it, or what we can acquire in exchange for it. What should be obvious by now is that even though the price of gold increased by eighty-four hundred percent, we don’t know whether there was an increase in actual value or possibly a decrease in value if gold was unable to maintain its original purchasing power.
We can however, draw some conclusions about relative performance. The specifics are that gold gained in price by eighty-four hundred percent relative to the US dollar’s loss in value/purchasing power of almost ninety-nine percent. (see A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold)
Gold has maintained its value, and increased its purchasing power in absolute terms, over the century-long period under consideration.
What we don’t know is the extent to which the current price of $1750 oz. reflects accurately the loss in US dollar purchasing power. How much value has the US dollar lost since 1913? Is it ninety-eight percent, or less; ninety-nine percent, or more?
The current market price for gold of $1750 oz. indicates a fairly specific loss of 98.8 percent in US dollar purchasing power. A full ninety-nine percent decline translates to a one hundred-fold increase in gold’s price, or $2060 oz.
In August 2020 gold traded at $2057 oz., which indicates a loss in purchasing power in the US dollar of ninety-nine percent since 1913.
As recently as January 2016, gold traded as low as $1040.00 per ounce. That price indicates a decline in US dollar value closer to ninety-eight percent. In fact, it is nearly exactly equivalent to that mark. A ninety-eight percent decline in US dollar value equates to a fifty-fold increase in the gold price since 1913 (100 percent minus 98 percent = 2 percent; 100 percent divided by 2 percent = 50; $20.67 per ounce times 50 = $1033.50 per ounce)..
HOW MUCH IS GOLD WORTH TODAY?
Gold, in US dollars, is worth somewhere between $1000.00 and $2000 oz. That may seem like a broad range for price-conscious investors, but it is consistent with gold’s price action historically.
The current price of gold at $1750 oz. reflects a specific loss of 98.8 percent in US dollar purchasing power.
The US dollar is the only barometer you need to watch. The elements of surprise and timing are critical. Most especially so, if you are short-term oriented in your thinking.
Items for consideration that could have a substantial impact on the US dollar include 1) new and unexpected actions by the Federal Reserve; 2) accelerated or delayed effects of inflation previously created by the Fed; 3) complete repudiation of the US dollar; 4) a credit implosion; 5) Fed’s reaction to a credit implosion.
Some of the listed items, or variations of them, can affect the value of the U.S. dollar positively, too; which is why you need to keep your eye on the dollar, and not the specific event.
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!
Gold And Unrealistic Expectations – Gold Is Not An Investment
GOLD AND UNREALISTIC EXPECTATIONS
Gold has been characterized as insurance, a hedge against inflation/social unrest/instability, or, more simply, just a commodity. But it is treated most of the time, by most people, as an investment.
This is true even by those who are more negative in their attitude towards gold. “Stocks are a better investment.” In most cases, the logic used and the performance results justify the statement. But the premise is wrong.
Gold, Mansa Musa, And Inflation
GOLD AND MANSA MUSA
From Wikipedia…
Musa Keita I (c. 1280 – c. 1337) was the tenth Mansa, which translates as “sultan” (king) or “emperor”, of the wealthy West African Mali Empire.
During his reign Mali may have been the largest producer of gold in the world at a point of exceptional demand. One of the richest people in history, he is known to have been enormously wealthy; reported as being inconceivably rich by contemporaries, “There’s really no way to put an accurate number on his wealth” (Davidson 2015).
Gold Is Still About The US Dollar Part II
GOLD IS STILL ABOUT US DOLLAR PART II
In my original article I made the following statements:
“It means that holders of any non-USD currency who want to exchange it for gold, must first exchange it for US dollars and then exchange the US dollars for gold.
When anyone is selling gold, the proceeds are always paid in US dollars. The dollars can be held as such, or they can be exchanged for other currency.”
Another professional labeled the above statements as “fiction”.
I do not agree. But I do see the possibility for others to infer something other than what was intended. Therefore, I apologize. And I have replaced the statements in question with the following: