Coming from a long bear market, some analysts predict the value of gold to hit up to $15,000 per ounce in the next five years. So, they advise gold bullion or mining shares investors to stay calm when gold rallies or when the dollar price retreats because they can assure that gold is still the best form of money and proves valuable to investors over time, regardless of inflation or deflation.
One of the experts assuring investors on gold value is lawyer, economist, and investment banker James G. Rickards, who believes that a bit of elementary math helps understand how the dollar price of gold can move up in the said period. "We'll assume a baseline price of $2,000 per ounce, essentially where gold is today," he said explaining that a move from that amount to $3,000 per ounce is a heavy lift because that is already a 50 percent increase and could easily take a year or more. "Beyond that, a further increase from $3,000 per ounce to $4,000 per ounce is a 33 percent increase, another large rally. A further gain from $4,000 per ounce to $5,000 per ounce is a further gain of 25 percent," he further stated, pointing to the pattern where each gain is $1,000 per ounce, but the percentage increase drops from 50 percent to 33 percent to 25 percent.
"That's because the starting point is higher while the $1,000 gain is constant. Each $1,000 jump represents a smaller percentage gain than the one before. Moving from $9,000 per ounce to $10,000 per ounce is only an 11 percent gain and from $14,000 per ounce to $15,000 per ounce is only a seven percent gain. Gold can move one percent in a single trading day, sometimes two percent or more," he elaborated.
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Rickards also emphasized that one gets more gold for the money at the outset and high percentage returns as gold rallies from a lower base. "Toward the end of the long march to $15,000 per ounce, you’ll have bigger dollar gains because you started with more gold," he assured."Others will jump on the bandwagon, but you'll already have a comfortable seat." So don't get easily affected, he said.
Meanwhile, analysts at Goehring & Rozencwajg (G&R), a Wall Street investment firm noted that gold prices had a strong first half of 2023 with a year-to-date gain of over five percent, outperforming many other asset classes and commodities. But they believe that we are still in the early days of the gold bull market. "We think that gold has entered into a new phase of this bull market," said managing partner Adam Rozencwajg, who based his statement on the firm's Q1 report pointing to two factors that prompted G&R to step back from gold in 2020. First of which is that "the gold-oil ratio was favoring energy" and the second is that silver had "caught up" to gold.
According to Rozencwajg, the new bull market phase that began in the third and fourth quarters of 2022, "revolves around central banks' behavior as much as anything else." He also pointed to geopolitics as a contributing factor to the central bank purchases. "Due to the ongoing tensions around the world, many emerging economies are looking to diversify away from the US dollar in their reserve holdings and use gold as an alternative," he said. (Related: Mario Innecco: RISING gold prices spell TROUBLE for the dollar and other fiat currencies.)
If the Fed starts easing interest rates, gold will go even higher
For Bruce Liegel, a former macro fund manager and author of "Global Macro Playbook," central bank tightening has been a negative as all of them are pulling money out of the system. "That is negative gold. So, in the short term, maybe the balance of 2023, I think gold probably trades lower. But once the feds stop tightening and they start easing rates, gold can go higher later next year and into 2025." He added that the future path of gold is going to be determined by the degree of the landing – depending if it's a soft landing or it's a hard landing in the recession.
"If it is a hard landing, it'll go up a lot more because it means that the central banks will ease more and they have to print again. A soft landing means that maybe they don't have to ease quite as much," he explained. On the other hand, if a hard landing happens, it sets the case for an even stronger inflationary interest rate environment later on because it puts more fuel onto the fire down the road again. The economist expressed concern that if the central banks do go into a huge easing mode, it sets up the next phase of higher rates and higher inflation.
Nevertheless, Liegel said that gold is indeed an investment and usually for safe haven keeping to maintain one's purchasing power.
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