Saturday , 25 January 2020

Your Financial Entertainment For Today: $14,000 Gold

Gold spiked after last Friday’s drone strike that took out a top Iranian military official and is trading at seven-year highs but, even without the latest geopolitical tensions, gold is poised for a historic run.

 

If we simply average the performance of the past two bull markets (1971–80 and 1999–2011) and extend the new bull market on that basis, we would expect to see prices peak at $14,000 per [troy] ounce by 2026.

There are three principal drivers of this new gold bull market:

  1. Geopolitics
    • Geopolitical hot spots like Iran, Korea, Crimea, Venezuela, China and Syria remain unresolved. Some are getting worse. Each flare-up drives a flight to safety that boosts gold along with Treasury notes, as the latest incident shows.
  2. Supply and demand
    • The supply/demand situation remains favorable with Russia and China buying over 50 tons per month to build up their reserves while global mining output has been flat for at least five years.
  3. Fed interest rate policy
    • ..There’s little chance that the Fed will be raising rates any time soon. The Fed is much more likely to cut rates as the U.S. economy faces strong headwinds, especially from rising debt levels.
    • Debt is growing faster than the economy and is now at the highest levels since World War II. We’re nearly in the same position on a relative basis as we were in 1945.
    • Because of the natural deflationary state of the world and the high debt-to-GDP ratio, growth has been snuffed out and
    • based on Congressional Budget Office projections — which I think are conservative — the debt-to-GDP ratio is going to keep going up. There is no way out except inflation.

Add it all up and the environment is highly favorable for gold but, if you want evidence that owning gold is probably the best way to guard your wealth, just look at the “smart money”…and here’s the thing: I’ve never met one of them who does not have a large hoard of physical gold stored safely in a non-bank vault. Not one.

If gold bullion is the go-to asset for billionaires, why don’t small investors have at least a 10% allocation to gold and silver bullion just in case? Some do, but most don’t. They’ll find out the hard way what individuals have learned over centuries and millennia – gold preserves wealth; paper assets do not…

Editor’s Note:  The above excerpts from the original article by James Rickards have been edited ([ ]) and abridged (…) for the sake of clarity and brevity.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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