World economic trends and the future price of gold
By Jeffrey Nichols
I have no doubt that gold will move up sharply in the years ahead, reaching heights that might lead some to label me a “gold bug.” I believe that the price of gold will, over the course of this decade, reach a multiple of recently prevailing prices.
Prices of $3000, $4000, and even $5000 an ounce are very likely during the course of this long-lasting bull market, a bull market that still has years of life left to it.
Not withstanding the recent sharp price decline, I’d be very surprised to see gold dip into “three-digit” territory – that is below $1000 an ounce – ever again.
But, gold prices will remain extremely volatile – with big swings both up and down along a rising trend. In fact, big corrections – such as the decline from the September 6th all-time record high near $1,924 an ounce to the recent low near $1,580 – will lead many investors, analysts, and pundits to declare the death of gold . . . or, at least, the death of the bull market we have enjoyed over the past dozen years.
Yet, historically, a gold-price decline of 20 percent is not so unusual. At the time of the Lehman bankruptcy in 2008, gold fell by more than 20 percent and was slow to recover – but recover it did. And, in the 1970s, gold corrected several times by 15 to 20 percent and once by considerably more – all in the midst of a great bull market.
Moreover, although the U.S. dollar-denominated price of gold is well off its historic high, when valued in most other currencies, the metal’s price remains near its record highs.
The future price of gold is a function of past and prospective world economic, demographic, and political developments.
Gold’s bullish building blocks
Let me quickly list the gold’s bullish building blocks – and then, as time permits, I’ll discuss a few of these bullish factors, in somewhat more detail. You will notice that many of these factors are interrelated – but it is easier, for the sake of this discussion, to think of them as separate and distinct.
–The first bullish building block is past and prospective U.S. Federal Reserve monetary policy, characterized by low or negative real rates of interest and unprecedented central bank monetary creation.
–Second, the U.S. federal government budget impasse, rising U.S. sovereign debt, and eroding U.S. Creditworthiness.
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