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Rickards: Why Gold?

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Why gold?

In a recent article, Jim Rickards offers three reasons the biggest gains in gold prices are yet to come.

We are currently in the midst of the third great gold bull market since President Richard Nixon severed the last ties between the dollar and gold.

The first was 1971 to 1980 when the price of gold rose 2,200%. The second ran from 1999-2011 as gold rose 760%. The third gold bull market began in December of 2015 when gold bottomed at $1,050 after making a record high just above $1,900. Since then, gold has nearly doubled, pushing over $2,000 an ounce earlier this year.

As Rickards notes, we’ve seen a healthy gain during this third bull market, but it is “small change” compared to the massive gains we saw during the first two bull runs.

When it comes to markets, nothing moves in a straight line, but if you look at the long-term trend, the upward trajectory of the price of gold over time is pretty impressive. Even with significant bull market setbacks in between the bull runs, gold is up over 5,000% since 1971.

Now Rickards believes this third gold bull market is poised to pick up steam. That could push gold to over $3,000 an ounce in the short-term and over $10,000 in the long run. He cites three possible big drivers for gold in the months ahead.

Based on History This Bull Market Is Far From Over

Rickards says if we use the previous two bull markets as a guide, the current bull still has a long way to run. If you average the gains in the last two bull markets and apply it to the one that started in 2015, that would put gold at $14,000 by 2026.

Loss of Confidence in the US Dollar

Peter Schiff has been talking about a looming dollar crisis. During an interview on Fox Business last summer, he warned, “The dollar’s not just going down. It is going to crash.”

I think the dollar is going to keep drifting down until it collapses,” Peter said.  “And this is going to usher in a real economic crisis in America, unlike something we’ve ever seen. Because it’s going to force the Fed to choose between saving the dollar, and dumping all the bonds its been buying, letting interest rates rise sharply, forcing the US government to slash spending right now and abandon all these stimulus plans, or just let inflation ravage the entire economy and wipe out a generation of Americans.”

Rickards says the massive money-printing program by the Fed to bail out investors during the coronavirus pandemic could precipitate a loss of confidence in the greenback.

If central banks have to use gold as a reference point to restore confidence, the price will have to be $10,000 per ounce or higher. Any lower price would force central banks to reduce their money supplies to maintain parity, which would be highly deflationary.”

Panic Buying in Response to the Next Disaster

Gold has historically served as a safe-haven during times of uncertainty and economic chaos. There’s no reason to think that will end. Rickards said a buying binge in response to the next disaster could drive gold significantly higher. The precipitating event could take the form of a “second wave” of coronavirus infections, a geopolitical meltdown, the failure of a major gold ETF, or post-election chaos.

Rickards said that the gold market is not currently priced for any of these outcomes.

It won’t take all three events to drive gold higher. Any one would do just fine. But, none of the three can be ruled out. These events (and others) would push gold well past $3,000 per ounce, on its way to $4,000 per ounce and ultimately much higher along the lines described above.”

 

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