Too Soon For New Highs In Gold

August 17, 2023

NEW HIGHS IN GOLD

Anticipation for explosive new highs in gold has risen sharply since last fall. After rising above $2000 earlier this year for the fourth year in a row, the gold price has dropped back to the mid-$1900s and continues to tease investors with somewhat lackluster performance.

Regardless, we need to be clear about the expectations for the price of the yellow metal.

The headline predictions from experts are many and varied, but they are consistent with respect to expectations for a much higher price over the next year or so and beyond. A gold price at $3000 is mentioned often. Is that realistic?

THE CASE FOR $3000 GOLD

Theoretically, it is easy to make a case for $3000 gold. The question is how soon can it happen.

Actually, there are two questions. We also need to know what would cause the gold price to move up by fifty percent in such a short time.

Answer: fundamentals, of course.

FUNDAMENTALS FOR GOLD

Most investors and analysts will say one or more of the following, but usually most or all of them, are fundamentals that will lead to a higher gold price: inflation, weaker U.S. dollar, dollar collapse, recession, bank failures, social unrest, war, political instability, Fed policy (pivot), etc.

Some will say that these fundamentals can change, and do. In other words, the fundamentals listed are for today. Supposedly, they may not have been applicable in the past, and might not be pertinent for future analysis.

In addition to the list above, other things which have been connected to changes in the gold price are: housing starts, the unemployment rate, and interest rates.

None of these things are fundamentals for gold.

REALISTIC GOLD PRICE EXPECTATIONS 

The only reason the price of gold rises over time is to reflect the actual loss of purchasing power in the U.S. dollar that has already occurred.

When gold was $20.67 oz, 20USD were exchangeable/convertible into one ounce (.9675) of gold; and vice versa.

Over the past century, the price of gold has risen to more than $2000 oz., representing a ninety-nine percent decline in U.S. dollar purchasing power.

Expectations for $3000, or any such higher gold price above $2000, may not be realistic in the short term. Here’s why…

In order for the gold price to move as high as $3000 oz., there would need to be a further fifty percent loss in U.S. dollar purchasing power. That equates to a doubling of consumer prices.

That is not likely to happen in the short term unless the U.S. dollar collapses. That could happen, of course, but by the time the U.S. dollar truly collapses and becomes an unacceptable medium of exchange, the gold price in dollars would be irrelevant.

What becomes important is how much gold you own; not what its price is.

CONCLUSION 

Think carefully about why you own gold. Do you need to see its price go up in order to justify your investment? Is holding gold less attractive to you if its price declines?

Gold is real money. Gold’s value is in its use as money. The gold price tells us how much purchasing power the U.S. dollar has already lost.

Much higher gold prices, such as $3000 oz., can only happen after further lasting and significant losses in U.S. dollar purchasing power. That is likely to take longer that most investors are willing to wait.

by Kelsey Williams for Neptune Global

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Neptune Global is a full service precious metals dealer serving individual investors, the wealth management industry, broker dealers and institutional investors. The firm’s platform of investment bullion includes all forms of traditional physical precious metals in conjunction with innovative physical precious metal investment assets which provide unparalleled diversification, transparency and liquidity. Their leadership in the market is documented with such official designations as being the recipient of a US Patent for the PMC Ounce (Precious Metals Composite). While dynamic offerings such as the PMC Ounce provide investors with many of the conveniences and benefits generally associated with mutual funds and ETFs, all of Neptune Global’s product offerings remain true to the firm’s core convictions related to the time tested value ascribed to physical precious metals ownership.


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