In 2015, the price of gold bottomed around $1,050 per ounce. It has since advanced to a high of $1,555 in early September, followed by a pullback to the current price of $1,470.
Gold is on a well-defined uptrend with higher lows and higher highs. Gold’s breakout above $1,360 during the summer of 2019 was significant, and the precious metals markets have seen notable buying since then – not just by individual investors. But by central banks around the world.
The $420 move in the price of gold from the bottom in late 2015 represents a gain of 40% in just under four years. While 40% is a very respectable gain, it only scratches the surface of gold’s potential move ahead. To understand why let’s take a look at the last two major bull markets in gold.
From 1971 to 1980, the price of gold soared from a low of $35/oz to a peak of around $850. This momentous climb was a gain of just over 2,000%.
Of course, the drivers for this massive move consisted of several important factors, including:
• the abandonment of the gold standard by Nixon;
• a stampede into gold as a safe-haven from double-digit inflation;
• oil price shocks;
• a weak dollar; and
• and political instability that made investors fearful and nervous.
Fast forward to 2001. For 9 years, gold made another dramatic move from a low of $250 to a staggering high of $1,920. This gain represented a gain of around 600% in that decade!
Of note – even though the price of gold had dropped to $250 from its $850 high, take notice that even at this low level, the price of gold was still about 10x higher than it was a decade earlier.
The current bull market cycle for gold is four years old. However, the gold bull hasn’t broken out of the gates yet. The 40% move higher for the price of gold since 2016 is a modest rise relative to the last two bull markets. The price of gold would still need to go up roughly 15x (1,400%) to match the 1970’s bull market. If that were to happen, the price of gold would be over $22,000/oz. Or the price of gold would need to go up another 5.5x (450%) to $8,000/oz to match the gains for gold during the 2001-2011 bull market.
Arguably, we currently are not experiencing runaway inflation in the United States. The President does not have the power to take us off of the gold standard either since we have not been on the standard for nearly 50 years. But, we do have quite a few factors that should support the gold price going forward.
Some of the factors that support a significant increase in the price of gold are:
• record levels of debt;
• U.S deficit of nearly a trillion dollars;
• interest rates dropping toward zero;
• the Federal Reserve expanding their balance sheet at twice the pace it was during QE3;
• the FED intervening in various markets (Repo and Treasury);
• political unrest worldwide;
• the potential for the impeachment of the United States President;
• elevated geopolitical tensions between world powers;
• a global de-dollarization movement that is accelerating; and
• slowing economic growth.
By most standards, the underlying conditions that caused the gold price to spike 20x in the 1970s could be seen as far worse today.
Gold has been a source of security and an engine for growth for decades. As economic and political conditions at home and abroad continue to deteriorate, the demand for safe-haven assets is sure to continue to increase.
Based on the previous two 10-year bull market cycles for gold, we can extrapolate that there are between 5-6 years remaining in this current cycle for gold. There remains room for an upside of 5-15x the current price of gold.
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