I’ve never been a fan of gold because in a sensible world there is no use for it as money. Sadly the ‘sensible’ predicate is wrecked so suddenly Gold takes on a sudden allure.
Apart from adornment, electronics, and a bit of dentistry, the only real use of gold is to pay for major wars. Governments stash it not because they think its money in the normal sense but because when the bombs are raining down, winning or losing, other nations will trade for gold even while they refuse all other payments. Its primitive money for crazy times.
Sadly these are crazy times and I am up to my ears with Gold. This is working out well but the question is, how high can Gold go.
That depends on inflation and as yet the scale of what happens next is unknown because global Covid lockdowns are still rolling and their end is indeterminate and as such the need to print money to shore up countries titanic budget deficits are yet to be defined.
It is this global ‘money printing’ expansion that will set the future price of Gold and it could be as high a bazillion dollars in a hyper-inflation scenario and it could be as low as a few hundred dollars if things pan out better than can reasonably be expected at the moment.
My ‘holy cow’ moment was when I saw this chart.
This is following my favourite pattern, the hyperbolic takeoff. This would mean the beginning of a bubble for normal assets, but for currencies this normally means one of the pairs is dying from inflation and as you could say Gold/USD is actually a kind of currency pair, the implication of a potentially huge rally in Gold versus the Dollar is laid bare.
In a parabolic sequence this is what happens next
…..and we’ve all seen this chart many times before.
…but wait. Please appreciate this is an outrageous call. Am I sure Gold is going to do this? No.
Do I think it is possible, YES.
So as I write we are around the all time high and we are in a BTATH (buy the all-time high) situation.
To me $2400 doesn’t seem to be much of a stretch.
Why?
There has been a 30%+ increase of US money supply in the last few weeks. Lets say pre-covid Gold was $1600, stick 30% on to that and you are at $2240. Add to the fact more stimulus is on its way and more printing to fill the giant fiscal deficit in unavoidable and you skip pretty easily to $2400.
Then there is the giant wave of new speculators that have flooded the markets in this new, lockdown, ‘trade for free’ paradigm. These gamblers will jump on anything that moves and they will jump on Gold. How far those people can bubble a $5 billion dollar asset is an open question but we can be pretty sure an out of control US economy that has already printed an annualised 100% increase in money can certainly shift handles on the Gold price and for that matter decimal points.