Back in 2002, I was talking about $1,000 gold. When we hit that mark in ’05 and ’06 I began predicting that gold would rise to $2,000.
Now, I’m saying gold will probably go to $5,000 in the next move up.
“Looking at the performance of gold from 1976 to 1980, the metal went up eight times. If we repeated that performance, gold would be at over $8,000 from today by the end of the decade. I don’t know if the same thing will happen this time, but it tells you that $5,000 per ounce is not unthinkable.“
Submitted by Henry Bonner, Sprott’s Thoughts:
The last time I spoke with Mr. Oliver, he said the fundamentals for gold still looked attractive, based on gold’s historical performance relative to the Dow Jones. I spoke with him recently in Toronto.
What catalysts could take gold higher in the near term?
“Well, despite huge inflows of cash from the Fed onto banks’ balance sheets, the velocity of money, which strongly affects inflation, has not changed much. This explains why money printing has not translated into inflation.
“Governments have been lending at zero interest rates, and banks can make a small margin by lending that money back to the government. As a result, cash stays on bank balance sheets. But this could change soon.
“The Fed’s reduction of QE, which they have reduced from 85 billion to $35 billion per monthwould intuitively be negative for gold. But this also indicates that banks are becoming healthier, which could mean they will begin to push money out into the broad economy. The velocity of money could pick up as a result.
“The 70s were a classic example where banks – and companies – felt shaky about the economy overall, so they held onto cash at first. But when they got a whiff of inflation, they quickly looked for ways to spend that cash. Rising nominal prices made it a good idea to buy things right away – you would be paid to hold onto those things, such as real estate or oil, because their price was rising. This caused a vicious cycle with the U.S. dollar losing value.”
Where is gold going from here?
“I’d say $5,000 – by the end of the decade. Of course people look at you like you’re crazy when you come out with a big prediction. Really it is not that big, going off of the historic relationship between the price of gold and the level of the Dow Jones. Back in 2002, I was talking about $1,000 gold. When we hit that mark in ’05 and ’06 I began predicting that gold would rise to $2,000. Now, I’m saying gold will probably go to $5,000 in the next move up.
“Looking at the performance of gold from 1976 to 1980, the metal went up eight times. If we repeated that performance, gold would be at over $8,000 from today by the end of the decade. I don’t know if the same thing will happen this time, but it tells you that $5,000 per ounce is not unthinkable.
“The market is irrational. In 2013, the price fell by a lot, but looking at the fundamentals it’s hard to find what caused it to fall apart. Quantitative Easing was still going strong then. China was importing a lot of gold – around 40 percent of the worldwide gold production that year. And going forward, I see China continuing to be a major player, buying a lot of gold. This power shift will eventually result in the demise of the U.S. dollar too.”
Will gold begin to head higher in 2014?
“By year-end, I’d say gold could reach $1,600 to $2,000 per ounce. But of course, I’ve been surprised by how long this market is taking to recover. I’m not sure when this market will wake up and come back to life.
“I see a brief window within the next few months where the gold price could recover, because the gold price tends to perform poorly from March through June. It tends to perform better in July and August, so I’d expect something to happen then if the gold price is going to take off this year.”
P.S.: Join us in person at the upcoming Sprott Vancouver Natural Resource Investment Symposium, from July 22-25. You will hear about the opportunity that investors have in natural resources today from some of the best in the business, including Robert Friedland and Doug Casey. The whole show is hosted by Rick Rule, Chairman of Sprott US Holdings. You can find out more about the event here and click here to register now.
This information is for information purposes only and is not intended to be an offer or solicitation for the sale of any financial product or service or a recommendation or determination by Sprott Global Resource Investments Ltd. that any investment strategy is suitable for a specific investor. Investors should seek financial advice regarding the suitability of any investment strategy based on the objectives of the investor, financial situation, investment horizon, and their particular needs. This information is not intended to provide financial, tax, legal, accounting or other professional advice since such advice always requires consideration of individual circumstances. The products discussed herein are not insured by the FDIC or any other governmental agency, are subject to risks, including a possible loss of the principal amount invested.
Generally, natural resources investments are more volatile on a daily basis and have higher headline risk than other sectors as they tend to be more sensitive to economic data, political and regulatory events as well as underlying commodity prices. Natural resource investments are influenced by the price of underlying commodities like oil, gas, metals, coal, etc.; several of which trade on various exchanges and have price fluctuations based on short-term dynamics partly driven by demand/supply and nowadays also by investment flows. Natural resource investments tend to react more sensitively to global events and economic data than other sectors, whether it is a natural disaster like an earthquake, political upheaval in the Middle East or release of employment data in the U.S. Low priced securities can be very risky and may result in the loss of part or all of your investment. Because of significant volatility, large dealer spreads and very limited market liquidity, typically you will not be able to sell a low priced security immediately back to the dealer at the same price it sold the stock to you. In some cases, the stock may fall quickly in value. Investing in foreign markets may entail greater risks than those normally associated with domestic markets, such as political, currency, economic and market risks. You should carefully consider whether trading in low priced and international securities is suitable for you in light of your circumstances and financial resources. Past performance is no guarantee of future returns. Sprott Global, entities that it controls, family, friends, employees, associates, and others may hold positions in the securities it recommends to clients, and may sell the same at any time.
HEROES SDWC D-Day- Available NOW at SDBullion!
10,000 Brilliant Uncirculated 1 oz Coins- in honor of the 10,000 Allied casualties suffered on D-Day
1,557 Proof 1 oz Coins- in honor of the 1,557 MIA Americans whose names are inscribed on the memorial wall in the Normandy American Cemetery Garden of the Missing.
Each of the individually numbered COA’s will specifically honor one of the 1,557 American Heroes MIA on D-Day, including their Rank, Name, Unit, Home State, & Decorations.