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I am not predicting a future price of gold or the date that gold will trade at $4,000, but I am making a projection based on rational analysis that indicates a likely time period for gold to trade at $4,000 per troy ounce. Yes, $4,000 gold is completely plausible if you assume the following:
So says GE Christenson (www.deviantinvestor.com) in edited excerpts from his original article* entitled $4,000 Gold! Yes, But When?
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Christenson goes on to say, in part:
My assumptions are:
- The U.S. government will continue to spend in excess of $1 Trillion per year more than it collects in revenue, as it has done for the previous four years, and as the government budget projects for many more years.
- Our financial world continues on its current path of deficit spending, debt monetization, Quantitative Easing (QE), weaker currencies, war and welfare, ballooning debts, and business as usual.
- A massive and devastating financial and economic melt-down does NOT occur in the next four to six years. If such a melt-down occurs, the price of gold could skyrocket during hyperinflation or stagnate under a deflationary depression scenario.
Still with me? I think most people will accept the above simple and rather obvious assumptions. Let me go on!
The U.S. government national debt is huge and will grow much larger during the next decade. Examine the following graph:
National debt is plotted on the left axis – yes, it was larger than $16 Trillion as of September 30, 2012. Gold is plotted on the right axis. The data covers an 11 year span from September 2001 through September 2012. This period includes the time after the stock market crash of 2000, the game-changing events of 9-11, the real estate crash, and the new bull market in commodities. Each month represents one data point. Note the similarity between the two trends. The statistical measure R-Squared for this 11 year period of monthly data is 0.969 – very high.
This expansion in the national debt is a simple proxy for expansion of the money supply and the devaluation of the dollar. The exponential growth rate for the national debt averaged over this period is 9.7% compounded annually, while the rate averaged over the last five years is 12.3%. The exponential growth rate for gold is a bit larger – about 18% per year compounded annually. I attribute this larger rate, in excess of 12.3%, to the realization that gold is a competing currency, mining supply is growing little, most governments are aggressively “printing money,” investors are increasingly interested in gold, and central banks are buying, not selling gold. In short, the realization that gold is real money and cannot be “printed” at will (like dollars and euros) has reached the awareness of the wealthy, central banks, sovereign governments, and a few individual investors.
I believe it is very likely that national debt and the price of gold will continue their 11 year exponential growth trend and since gold correlates closely with national debt, we now have a clear, objective, and believable proxy (national debt) to model the future price of gold.
Extend national debt and gold prices forward for the next five years based on the exponential increase from the last five years, and the result is the following table. Bracket gold prices, high and low, based on past annual volatility at about 15%.
As you can see from the above, this projection for gold prices indicates that gold could reach $4,000 as early as September 2016, with a theoretical projected price of $4,000 in late 2016 or early 2017.
The next graph shows the price of gold, on a logarithmic scale, with high and low trend lines. The horizontal line at $4,000 shows the earliest and latest dates at which the trend lines project gold will reach $4,000. Those dates are November 2015 through June 2017, which are consistent with the above projection based on the tight correlation to the national debt.
Conclusion
While we may be skeptical of price projections for gold, projections for national debt are quite believable. Since the correlation [between the price of gold and the national debt] is very close [0.969], future gold prices can be projected, assuming continuing deficit spending, QE, and other macroeconomic influences.
Another crash, or an unexpected bout of congressional fiscal responsibility, could accelerate (to as early as November 2015) or delay the date (until as late as June 2017) that gold trades at $4,000, but [I think you would agree that] the projection is reasonable and sensible.
* http://www.deviantinvestor.com/1649/4000-gold-yes-but-when/
Editor’s Note: The above post may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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