Tuesday , 21 September 2021

The Future Price of Gold Is Dependent On the Future Direction of the USD

…If you want to know and understand what is happening to gold’s price, then you need to know and understand what is happening to the U.S. dollar. The value of gold is constant: its price changes according to changes in actual purchasing power of the U.S. dollar. 

…Beginning in 2001, the U.S. dollar began a significant decline on world markets lasting until 2008. During that time the price of gold rose from $256 per troy ounce to as high as $1023/ozt.

A secondary low for the U.S. dollar occurred in 2011. This was closely concurrent with a peak in gold’s price at $1896/ozt.

Again, as in the period following gold’s price peak in 1980, the U.S. dollar began a multi-year period of strength and stability.

  • The muted effects of inflation between 2011 and 2016 resulted in…the price of gold declining from $1896/ozt. to $1049/ozt. during that period, a loss of 45%.
  • The price of gold since then has risen to $2060/ozt. and subsequently declined back to $1675/ozt.
  • Meanwhile, the U.S. dollar has neither gotten much weaker nor strengthened to any measurable degree…

The chart (source) below illustrates the link between gold’s price and the U.S. dollar…

There are five major turning points for gold’s price that are reflected on the chart. All five turning points (1933, 1971, 1980, 2000, 2011) coincided with changes in the U.S. dollar.

Gold is priced in U.S. dollars and since the U.S. dollar is in a state of perpetual decline, the U.S. dollar price of gold will continue to rise over time, as is shown in the chart.

GOLD – WHAT TO EXPECT NEXT

  1. …If you think that a collapse in the U.S. dollar is imminent, and that runaway inflation is just around the corner, then load up on gold but don’t expect to get rich if you are correct. At best, all you can expect is to maintain your current level of purchasing power for whatever wealth you have already accumulated.
  2. If we have a period of relative tranquility and economic prosperity with mild inflation effects, then gold’s price could languish or decline for many years.
  3. If we have a financial collapse with credit defaults it would likely usher in a long-lasting economic depression and deflation…[which] would result in price declines for all assets of anywhere from 60-90% or more and, yes, that includes gold.

SUMMARY

…If you want to know and understand what is happening to gold’s price, then you need to know and understand what is happening to the US dollar. The value of gold is constant: its price changes according to changes in actual purchasing power of the US dollar. 

Editor’s Note:  The above version of the original article by Kelsey Williams, has been edited ([ ]) and abridged (…) for the sake of clarity and brevity to ensure a fast and easy read.  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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