Gold has caught a bid as a safe-haven asset in the face of significant stock market volatility and increasing concerns about another major financial crisis on the horizon.
The longer-term chart shows our forecast for the gold price over the next several years. We analyzed the last major bull cycle in order to gauge the potential magnitude of the current bull cycle that just started. As you can see, the last major run took the gold price from $250 to $1,920 in just under 10 years. This was a move of 7.6x or around 660%!
- …If the current bull cycle were to generate the same level of gains, it would take the gold price 7.6x higher from the 2015 low of $1,050 to $7,980 by the end of 2025.
- Even if we only estimate a move that is half the magnitude of the last major bull cycle, we are still targeting a gold price of $3,990 by the end of 2025. This calculation takes the 2015 low of $1,050 and multiplies it by 3.8 to get the low end of our target so, while the range is wide, we fully expect to see the gold price close out the year 2025 somewhere between $4,000 and $8,000 per [troy] ounce.
…The price trajectory in our model forecasts predicts that:
- gold will end the year 2020 somewhere between $2,050 and $2,950 per [troy] ounce. This suggests upside of 45% to 105% over the next 12 to 18 months.
Gold Mining Stocks
While the coming gold price gains are significant enough to make most investors salivate, the potential returns from deeply undervalued mining stocks are even more exciting.
While mining stocks do not always offer strong leverage to the underlying move in the gold price, the leverage is most pronounced during the initial phases of new bull market cycles. We have already seen early signs of this leverage, as the…GDX has returned more than 2x the gains of gold in 2019. I expect this leverage to increase to 3x or higher once gold breaks above $1,500 and starts moving back toward all-time highs. This suggests that:
- if the gold price does advance by 45% to 105% by the end of 2020, the returns from mining stocks could be
- in the 90% to 210% range on the low end (assuming 2x leverage continues)
- or 135% to 315% on the high end, if my 3x leverage forecast comes to fruition and
- that many of the gold mining stocks that we cover will be 10 baggers (10x or greater returns) by 2025.
No matter where the dust settles, it is safe to say that the upside potential is significant in both gold and gold mining stocks over the next few years. I view it as an asymmetric trade with a favorable risk-reward profile. This doesn’t mean that investors should go “all in” at this moment, but the odds of a major bull run have increased significantly with gold taking out important resistance around $1,375.
Just remember that physical gold is insurance, while gold stocks are speculation. One is to preserve wealth while the other is a bet to create or increase wealth. Don’t keep all your eggs in one basket.