Gold Forecast: Thoughts About $25,000 Gold

September 28, 2019

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I'm sure that others are already calculating and anticipating what $25,000 gold might mean to holders of the shiny, yellow metal. It makes previous targets of $10,000.00 per ounce sound blandly conservative.

But, is $25,000 per ounce for gold a reasonable number? And, when might we expect it?

Pierre Lassonde, Canadian philanthropist and co-founder of Franco-Nevada, says gold could hit $12,500 an ounce by 2049; and that under the "right" conditions, it could go as high as $25,000.

The difference between the "average price target" of $12,500, and the possible $25,000 price is huge. But it is not an unrealistic differential. Extreme differences in average prices and peak prices appear normal for gold.

In January 1980, gold's price peaked at $850 per ounce. For the entire year of 1980, the average closing price for gold was $614 per ounce. Prior to its peak price, for all of 1979, golds average closing price was $307.

And, in 2011, the year in which gold's price peaked at close to $1900 per ounce, the average closing price for gold was $1573. The year before that, it was $1226.

So which price should we focus on; the average price target of $12,500 or the possible peak price of $25,000?

For now, lets turn our attention to $25,000. That is the number in the headlines, and it is the number that investors and others are likely dreaming about. Most people don't fantasize about 'average' prices, so we won't either.

The $25,000 price target by 2049 is thirty years away, though. That is a long time to wait; even if you are right. A lot can happen in thirty years.

Gold's current price is near $1500 per ounce. If gold's price hits $25,000 by 2049, that is an average annual return of 10%. That sounds very good; maybe too good.

Historically speaking, gold's most profitable 30-year period for price appreciation occurred between 1970 and 2000. Gold's price at the beginning of the period was $35 per ounce. At the end of the period it was $280. The average annual return was just slightly over 7%.

Unfortunately, all of the gains came in the first ten years, when gold's price soared from $35 per ounce to a peak of $850. For the ten-year period, gold's price increased at an average annual rate of 37%. After that, it was all downhill for the next twenty years.

The next most profitable ten-year period for gold price appreciation occurred between 2001 and 2011. During that period, the price of gold appreciated at an average annual rate of almost 22%.

That was followed by four and one-half years of declining prices and negative annual rates of return. 

The pattern of long periods of declining gold prices interwoven with the sharply higher increases over shorter periods has led to decreasing average annual rates of return for gold.

This is because the effects of inflation are continuing to lessen (see Fed Inflation Is Losing Its Intended Effect). Expecting a 10% average annual return for gold prices from this point in time forward seems highly optimistic.

It is also quite possible that gold might be headed significantly lower before it heads higher in earnest. In other words, new highs in gold are probably not just around the corner. (see What If Gold Is Not In A New Bull Market?

Expectations for much higher gold prices are rooted in certain assumptions about gold which are the result of seemingly fundamental logic. However, the logic is faulty because it is based on faulty assumptions. 

For example, some would say that there is increasing demand for gold which translates into higher prices. Or, they may conclude that higher prices for gold means that its value is increasing. They mistakenly believe that gold's higher prices indicate that it is becoming more valuable. As a result, they 'invest' in it.

But gold is not an investment. Nor, is it an alternative investment, or a hedge. It is one thing only - real money.

Anything else is a substitute for real money. This includes all paper currencies, especially the US dollar. It also includes crypto currencies.

Gold is priced in US dollars. International trades are settled in US dollars. The changing price of gold in US dollars is a reflection of changes in the value of the US dollar.

Gold is the original measure of value. The price of gold in dollars tells us what the dollar is worth - NOT what gold is worth. The same thing would apply if gold were priced in Euro, or Yuan, or any other currency. Gold's value is rock-solid stable. It does not change.

Now back to the $25,000 price projection for gold. In a certain sense, it is a very reasonable number. But, by the time you see it, it will not make much difference to you. Certainly, it will not make you rich.

For the past century, the Federal Reserve has been intentionally practicing inflation by expanding the supply of money and credit. The debasement of money leads to a loss of purchasing power which results in higher prices generally for all goods and services. 

This is why it costs more today to sustain lifestyle and pay your living expenses than it did ten years ago; or one hundred years ago. The US dollar and all paper currencies continue to lose value. So, the prices you pay in dollars (or yen, euro, etc.) for the goods and services you buy, continues to increase. 

Today, the US dollar is worth only a fraction of what it was worth one hundred years ago. Its purchasing power equates to approximately one and one/half cents compared to the dollar of a century ago. That is a decline of between ninety-eight and ninety-nine per cent. 

Correspondingly, this is reflected in the price of gold in dollars, which is about seventy times ($20.67 per ounce x 70 = $1447 per ounce) greater today than it was one hundred years ago. 

The only thing that will result in higher prices for gold, such as $25,000 per ounce, is continued depreciation of the US dollar. That continued depreciation and subsequent loss of purchasing power means that you will pay much, much more for the goods and services you buy.

For example, how rich will you be if you are paying $50.00 for one loaf of bread thirty years from now? Or fifty dollars for one gallon of gasoline? Your gold "profits" will be needed just to maintain your standard of living. (see A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold)

This is just as true, and probably more so, if we saw a significantly rapid decline in the US dollar over a shorter time frame; say five or ten years. The deteriorating social conditions that would accompany that rapid a decline in the dollar's value, as evidenced by a $25,000 gold price, would border on anarchy. 

Finally, a complete repudiation of the US dollar makes the price of gold in dollars meaningless. We might as well be talking about $100,000 gold, or $1,000,000 gold.

Will you sell your gold for one billion dollars of Monopoly money?

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED!

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Kelsey Williams

Kelsey Williams has more than forty years experience in the financial services industry, including fourteen years as a full-service financial planner. His website, Kelsey's Gold Facts, contains self-authored articles written for the purpose of educating and informing others about gold within a historical context. In addition to gold, he writes about inflation and the Federal Reserve.

Kelsey is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED! 

Kelsey Williams is available for private consultations, public speaking, and interviews at kwilliams@kelseywilliamsgold.com

China has only 2% of its Total Foreign Reserves in gold.

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