Why Gold?
The comments below are an edited and abridged synopsis of an article by James Rickards
People today don’t know much about gold, but it’s not their fault. The economics establishment have closed ranks, and gold is a taboo subject. But wasn’t always this way, and Rickards details what happened to gold following the end of the gold standard on August 15, 1971.
The two great bull markets were 1971-1980 (gold up 2,200%) and 1999-2011 (gold up 760%). In between these bull markets were two bear markets (1981-1998 and 2011-2015), but the long-term trend is undeniable. Since 1971, gold is up 5,000% even after the bear market setbacks.
Now the third great bull market is underway. It began in December, 2015 when gold bottomed at $1,050. Since then, gold is up over 65%. That’s a nice gain, but it’s small change compared to 2,200% and 760% gains in the last two bull markets.
This pattern suggests the biggest gains in gold are yet to come. Rickards’s models say that gold is poised for historic gains as the third great bull market gains steam.
What could push it firmly over $2,000 and headed higher? There are three main drivers:
First: loss of confidence in the US dollar in response to massive money printing to bail out investors in the pandemic; second: a simple continuation of the bull market. Using the prior two bull markets as reference points, a simple average of those gains during those durations would put gold at $14,000 or higher by 2025; third: panic buying in response to a new disaster. This could be a second wave of Covid-19, a failure of a gold ETF or the Comex exchange to honour physical delivery requirements, or a victory by Joe Biden in the presidential election.
The gold market is not priced for any of these outcomes right now. It won’t take all three events to drive gold higher; one would do just fine. But none of the three can be ruled out.
These events (and others) would push gold well past $2,000, on its way to $3,000, and ultimately much higher.