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Thread: The Gold Price for the Next 16 Years

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    Iridium mamboni's Avatar
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    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)


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


    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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    Re: The Gold Price for the Next 16 Years

    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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    Re: The Gold Price for the Next 16 Years

    Quote Originally Posted by Sparky View Post
    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.
    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.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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    Re: The Gold Price for the Next 16 Years

    Quote Originally Posted by mamboni View Post
    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
    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.
    Retired Director Morris Waxler says the FDA did not do their job for 15 years - and is not now.

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    Re: The Gold Price for the Next 16 Years

    But they that wait upon the LORD shall renew their strength; they shall mount up with wings as eagles; they shall run, and not be weary; and they shall walk, and not faint - Isaiah 40:31

    Keep on asking, and you will receive what you ask for. Keep on seeking, and you will find. Keep on knocking, and the door will be opened to you. ~
    Matthew 7:7


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    Re: The Gold Price for the Next 16 Years

    If 1640 holds for a few days then we'll have broken through the pennant to the upside. This is extremely bullish.
    Tricks and treachery are the practice of fools, that don't have brains enough to be honest. -Benjamin Franklin
    Sincerity makes the very least person to be of more value than the most talented hypocrite. -Charles Spurgeon

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    Re: The Gold Price for the Next 16 Years

    Quote Originally Posted by mamboni View Post
    If 1640 holds for a few days then we'll have broken through the pennant to the upside. This is extremely bullish.
    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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    Re: The Gold Price for the Next 16 Years

    Quote Originally Posted by Neuro View Post
    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!
    \

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

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    Re: The Gold Price for the Next 16 Years

    Quote Originally Posted by Sparky View Post
    \

    What larger pennant? This looks to be the largest pennant out there.
    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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    Re: The Gold Price for the Next 16 Years

    Quote Originally Posted by Neuro View Post
    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...
    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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