The Gold Price for the Next 16 Years

The Gold Price for the Next 16 Years

Dr David Evans
Posted Aug 16, 2012

The high rate of debasement of paper currencies ensures the gold price trend will be solidly up until interest rates rise sharply, to maybe 15% in 2028.

Gold is monetary. It is the main non-government currency, evolved in the marketplace over 5,000 years.

the rest at http://www.321gold.com/editorials/ev...ans081612.html

Key excerpt:

Gold


Gold enforces honesty, because you have to earn it before
you can spend it. No one can conjure it up for little effort, and even digging
it out of the ground often takes almost as much effort as it’s worth. Gold is an
anti-cheating device, because when someone cries “bullshit” you’ve either got it
or you haven’t.


In particular, banks and government cannot print it. And
who hates gold? The monetary elite and governments prefer their dishonest money.
They enjoy the first use of the new money, spending it before it pushes up
prices. Governments can print to cover their debts if necessary. For centuries
the greatest game in banking has been to buy assets in a sector, approve more
lending for purchases in that sector, then sell their assets when the prices
subsequently rise, then cut off lending into the sector and watch the prices
fall - rinse and repeat every few decades.


Banks and governments bash gold. For the last 15 years
most large financials have been predicting gold prices a year hence as 10% less
than whatever it was at the time - but considering that gold has been rising at
21% p.a. for the last ten years, a track record that bad is hard to acquire by
accident.


As any currency trader knows, the long term value of
currencies is determined mainly by their relative rates of manufacture (or
debasement). Since 1982 the amount of above-ground gold has been increasing at
just over 1% p.a., while the amount of the main paper currencies has average
growth around 12% p.a. In 2007 the Australian broad money supply grew at 23%
(yet CPI was less than 3%).


Some say gold is in a bubble. Not so. A bubble suggests
that some ratio or pricing metric has moved up away from its normal value, and
later reverts to its mean. But gold always debases much more slowly than any
paper currency, so basically gold goes up forever against paper currencies, at
an average rate equal to the difference in their rates of debasement. A gold
price of one million dollars per ounce is only a matter of time - but will it
take 50 years or 500 years?


By historical standards, the price of gold is now low. In
the gold rushes of the 1850s, it was worth leaving the city to sail on a wooden
boat for three months, then live in the wilderness scratching in the dirt for a
few ounces of gold per year. What gold price would it take to get you to do that
today? Modern gold mining is a highly mechanized business yet it is barely
profitable.


The total amount of debt in the world in 2011 was around
210 trillion USD, and the world’s GDP was 60 trillion. Yet the value of all the
gold ever mined, going back to the Egyptians, is just 9 trillion USD. If gold
ever re-enters the official financial system, it will have to move up in value
quite considerably.


The last gold price rise was 1968 – 1980, when it rose
from 35 to 800 USD per ounce. What stopped its rise then? Overnight interest
rates around 20%, which made paper currencies attractive and stopped their
debasement. Presumably it will take similar interest rates to again stop the
rising gold price. But nobody today can afford to pay 20% interest rates,
especially governments, so gold is going to keep trending up for quite a
while.


Forecast to 2028


We can calculate how long the upcoming inflation will last
and how high gold will go, based on a few reasonable assumptions. The usual
caveats about forecasting apply, and if the central banks lose control of the
situation we are likely to veer off either into hyperinflation (more likely) or
depression (less likely). But let’s be optimistic and assume they successfully
chart the most politically feasible course.


Debt levels are currently around 375% of GDP, but need to
revert to their normal level of 150%. This requires a 60% reduction in the real
value of debt.


Let’s suppose we get inflation cranked up by 2014, that we
run a 1970s high but tolerable inflation of around 12% (which the modern CPI is
likely to register as only around 5 – 8%), and that interest rates are around
6%. Then the real interest rate is -6% - so it takes 14 years to reduce the
value of debt by 60%.


To end the inflation, governments must make a credible
commitment to halting the rapid growth in the stock of money: they must raise
interest rates sharply, to maybe 15 – 20%. The gold price will continue trending
up until that happens, so until then gold investors can relax (ok, the ride
might be volatile). But when real interest rates go strongly positive, it’s time
to get out of gold :-)


Gold has been rising at a remarkably steady 21% p.a. for
the last ten years. About 11% of that might be due to the current debasement
differential, while the rest might be a combination of catch up for the period
1980 – 2001 when the gold price fell substantially in real terms, fear over the
possible abandonment of paper currency, and the possibility that gold will
re-enter the official money system. Under the scenario outlined above, the rate
should remain roughly similar.


Assuming gold continues to rise at an average of 21%
p.a.:


http://www.321gold.com/editorials/ev...ns081612/1.gif

Don’t let the nominal prices bedazzle you. Due to the
inflation, a dollar of 2028 is only worth 17 cents in today’s money, so the peak
price of $50,000/oz is only around $8,400/oz in today’s money.

(Click on image to
enlarge)

http://www.321gold.com/editorials/ev...ns081612/2.gif

The amazingly straight rise of gold for the
last 10+ years. Graph from Nick Laird at sharelynx.com.

The amazingly straight rise of gold for the last 10+ years.

Well, straight on a logarithmic y-axis.

This is probably reasonable if there is no paradigm shift, like there was in 1980 with 20% interest rates. In other words, if things really fall apart, there will be a bubble price, and then a paradigm shift, then a re-set to begin the next cycle. 28 years is far too long for a commodity-related bull cycle. I could see 2015 at the earliest ($3,800 nominally on the chart), and 2020 at the latest ($10,000). But he's presented a thoughtful analysis though, which is good to see.

Quote:

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Originally Posted by Sparky

The amazingly straight rise of gold for the last 10+ years.

Well, straight on a logarithmic y-axis.

This is probably reasonable if there is no paradigm shift, like there was in 1980 with 20% interest rates. In other words, if things really fall apart, there will be a bubble price, and then a paradigm shift, then a re-set to begin the next cycle. 28 years is far too long for a commodity-related bull cycle. I could see 2015 at the earliest ($3,800 nominally on the chart), and 2020 at the latest ($10,000). But he's presented a thoughtful analysis though, which is good to see.

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Agreed - the projected timeline is optimistic for the US dollar. I would be surprised if the dollar is still a reserve currency and not in free-fall by 2016. In any event, a massive interest rate spike a la Volcker is impossible without massive dollar devaluation vis-a-vis gold. CME just announced that gold will now be accepted as cash-equivalent collateral on trades. The world is awash with debt and leverage and severely short on collateral assets. The revaluation of gold upward is inescapable. Gold is very patient.

Quote:

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Originally Posted by mamboni

Agreed - the projected timeline is optimistic for the US dollar. I would be surprised if the dollar is still a reserve currency and not in free-fall by 2016

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i would say it's close to free-fall now. of course it depends on the definition of free-fall.


i would say, free fall is when you notice prices for non-luxury items going up 100% a year.

Today's action thus far:

http://finviz.com/fut_image.ashx?gc....11414013867500

& a longer time view:





http://finviz.com/fut_chart.ashx?t=GC&cot=088691&p=d1

If 1640 holds for a few days then we'll have broken through the pennant to the upside. This is extremely bullish.

Quote:

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Originally Posted by mamboni

If 1640 holds for a few days then we'll have broken through the pennant to the upside. This is extremely bullish.

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And then we have the larger pennant which I eyeball to have a current breaking point around $1700, seems like we have a very interesting autumn ahead of us. And then we just have the all time high to break through at $1930 (?) something, I wouldn't be surprised to see gold at $2500 spring next year!

Quote:

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Originally Posted by Neuro

And then we have the larger pennant which I eyeball to have a current breaking point around $1700, seems like we have a very interesting autumn ahead of us. And then we just have the all time high to break through at $1930 (?) something, I wouldn't be surprised to see gold at $2500 spring next year!

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\

What larger pennant? This looks to be the largest pennant out there.

Quote:

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Originally Posted by Sparky

\

What larger pennant? This looks to be the largest pennant out there.

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You have a smaller one that goes from high in beginning of June and have a breaking point around $1635. And then you have the larger one starting from September 2011, which have a breaking point around $1700, at this time... According to my own lying eyes it didn't break yet...

Quote:

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Originally Posted by Neuro

You have a smaller one that goes from high in beginning of June and have a breaking point around $1635. And then you have the larger one starting from September 2011, which have a breaking point around $1700, at this time... According to my own lying eyes it didn't break yet...

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OK, I see what you m ant Neuro. I was only looking at the big one. I've drawn the small in purple, and the big in teal. My line puts the bigger breakout down near $1675, but there's a lot of latitude in drawing big pennants.

Attachment 3512

Quote:

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Originally Posted by Sparky

OK, I see what you m ant Neuro. I was only looking at the big one. I've drawn the small in purple, and the big in teal. My line puts the bigger breakout down near $1675, but there's a lot of latitude in drawing big pennants.

Attachment 3512

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Getting close to the breakout of the larger pennant, now then! But I wouldn't be surprised if it takes a few weeks before reaming...

Quote:

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Originally Posted by Neuro

Getting close to the breakout of the larger pennant, now then! But I wouldn't be surprised if it takes a few weeks before reaming...

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Just touched $1675 this morning. Let's see if it deflects back downward, or is able to break through.

Quote:

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Originally Posted by Sparky

Just touched $1675 this morning. Let's see if it deflects back downward, or is able to break through.

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Now in the low 1670's again. Wouldn't be surprised if it goes down to $1640 once before charging through...

the Cartel worked very hard to push silver into the $27's and gold below $1600.

looks like they've been resting recently.

next week is options expiry.

i think they'll make another push, and try to get gold down to $1620 and silver back to the $28's.

Quote:

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Originally Posted by Neuro

Now in the low 1670's again. Wouldn't be surprised if it goes down to $1640 once before charging through...

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Perfect, gold bounced at $1644 yesterday, and cut through $1675 resistance like a hot knife through butter!

Quote:

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Originally Posted by Neuro

Perfect, gold bounced at $1644 yesterday, and cut through $1675 resistance like a hot knife through butter!

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It seems to me that gold is like a loaded spring. As it ascends, a cascade of stops get triggered, automatically closing out shorts and driving the price even higher. If I were an institutional investor, sitting on bonds yielding nothing and stocks looking toppy, and 20-30% underfunded, I'd be looking at gold real hard right about now and asking myself "do I really want to risk missing this gold bull run? And what if my competitors jump on board and I don't." Obviously, being a gold bug I am prejudicial for gold. But, if gold continues to climb next week and breachs 1700, then I think the institutional managers are going to start buying gold. If that happens, gold will move to $2000 and beyond within weeks.

gold will absolutely be $2,000 by year's end. wish i had some :(

Quote:

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Originally Posted by chad

gold will absolutely be $2,000 by year's end. wish i had some :(

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There is a silver lining: gold will do very well but silver is going to do spectacularly. Silver will outperform gold. When gold hits $5000 and silver hits $250, if you feel the need then that is when you should trade some silver for some gold.;D

Quote:

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Originally Posted by mamboni

There is a silver lining: gold will do very well but silver is going to do spectacularly. Silver will outperform gold. When gold hits $5000 and silver hits $250, if you feel the need then that is when you should trade some silver for some gold.;D

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noted good doctor :D

Looking at the Chart, above it looks like we will encounter some resistance at around $1760, and then later around $ 1800, on the move up to $1920 and beyond... But so far almost a perfect parabolic rise since May this year!

Quote:

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Originally Posted by gunDriller

the Cartel worked very hard to push silver into the $27's and gold below $1600.

looks like they've been resting recently.

next week is options expiry.

i think they'll make another push, and try to get gold down to $1620 and silver back to the $28's.

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I think that it is certainly possible for silver to go back down and retest the $26 support level between now and year's end. If silver ever made another run to $50, then margin rates would get raised and the JPM shorts would just smack silver back down if/when it got in the high $48/low $49 range. This would be a replay of last year if silver got that high.

Quote:

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Originally Posted by 1970 silver art

I think that it is certainly possible for silver to go back down and retest the $26 support level between now and year's end. If silver ever made another run to $50, then margin rates would get raised and the JPM shorts would just smack silver back down if/when it got in the high $48/low $49 range. This would be a replay of last year if silver got that high.

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i wouldn't be surprised to see them let the next Fed meeting go by - with no announcement of QE3.

then they do a raid, though i'm not sure they could get it back to $26.50-ish.

THEN they announce QE3.


all part of the "Strong Dollar Policy" Machiavellian Chicanery that constitutes economic policy in the USA.

Quote:

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Originally Posted by gunDriller

i wouldn't be surprised to see them let the next Fed meeting go by - with no announcement of QE3.

then they do a raid, though i'm not sure they could get it back to $26.50-ish.

THEN they announce QE3.


all part of the "Strong Dollar Policy" Machiavellian Chicanery that constitutes economic policy in the USA.

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Maybe silver would pull back to the $30-$31 range and if the European crisis takes a turn for the worse (i.e. Italy), then I could see silver going down further and testing the $26 support level. It could possibly break $26 on the downside if the European Crisis takes another turn for the worse (i.e. Greece). The Euro crisis is the main wild card in terms of what silver will do in the near future IMO. If the U.S. goes into another recession, that could lower industrial demand for silver and put downward pressure on the silver price. However, If silver continues to rally from here and it gets closer to $50, then it will get smacked down by the JPM shorts and it will not close above and hold $50. It would be a repeat of 2011 and to be very honest with you, I do not see silver hitting and holding $50 (or higher) before 2015. Just my gut feeling speaking to me on silver.

Quote:

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Originally Posted by 1970 silver art

Maybe silver would pull back to the $30-$31 range and if the European crisis takes a turn for the worse (i.e. Italy), then I could see silver going down further and testing the $26 support level. It could possibly break $26 on the downside if the European Crisis takes another turn for the worse (i.e. Greece). The Euro crisis is the main wild card in terms of what silver will do in the near future IMO. If the U.S. goes into another recession, that could lower industrial demand for silver and put downward pressure on the silver price. However, If silver continues to rally from here and it gets closer to $50, then it will get smacked down by the JPM shorts and it will not close above and hold $50. It would be a repeat of 2011 and to be very honest with you, I do not see silver hitting and holding $50 (or higher) before 2015. Just my gut feeling speaking to me on silver.

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You have made some remarkably accurate predictions in the past, but this time you are wrong, silver will surpass $50 next year (I don't think this year is likely), as gold surpasses $2000...

But silver art has a point, whats to say that they wont hike margins again like they did last time. What was it, four out of 6 days they hiked margins? I would imagine they could do that again at blow the whole rally up again, just like in 2011 and 2008.

Quote:

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Originally Posted by optionT

But silver art has a point, whats to say that they wont hike margins again like they did last time. What was it, four out of 6 days they hiked margins? I would imagine they could do that again at blow the whole rally up again, just like in 2011 and 2008.

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Sure they will, but fundamentals will make sure that there will be higher highs and lows in the future. The rulers are after all money printers not gold diggers!