The Case for Gold at $3,000 an OunceIf you hadn't already guessed, this article is about what the world looks like when Gold is $3,000 per ounce. Gold always looks the same, regardless of price. But the world can look much different, depending on the price of Gold. Today we will explore the forces at work that seem to be conspiring together to create such an inexorable rise in this beautiful yellow metal. One of the characteristics of Gold is that it generally will maintain it's luster through the years. Unfortunately, we cannot say the same thing about the world's favorite paper currency today, the US Dollar. Even the Bureau of Engraving and Printing, who will be printing more than $233 billion in paper currency, seems to expect the value of the Dollar to decrease, based on the quantity of each denomination being printed going forward.
Factors for GoldOne of the factors at work to help propel Gold to $3,000, is a general decline in the value of the US Dollar. Granted, this phenomenon might be paused due to a temporary shortage of Dollars needed to pay Dollar-denominated debts internationally. The rise in interest rates recently by the US Federal Reserve has also put some upward pressure on the relative value of the Dollar, but both of these trends we believe will be short-lived. There is mounting pressure among the developing nations of the world to trade and make purchases directly with one another without using Dollars. This trend decreases the demand for Dollars, which helps drive down the value relative to other world currencies.
Interest RatesThe recent interest rate increases appear to some to be a preemptive strike against a future recession. Not that rising interest rates can prevent a recession, to the contrary, they might help cause the next recession. But when the next downturn comes, policymakers want to be able to lower the interest rates in response. Because rates were so low for so long, they had to be raised in order to be lowered again later as the need arises. One might say, "why raise them in the first place if you know that will lead to conditions to lower them again"? I think because people were getting restless, and demanding change. There is a valid case to be made that the economy is not strong enough to endure interest rate increases at this time, and we believe it will be apparent before the spring of 2019.
Real Estate MarketWe have written recently about the real estate market beginning to be impacted negatively by the rising interest rates, a trend that has continued to intensify since it was posted here. Now, a month later, many are recommending that people not purchase a home, as they expect further price declines. A similar uncertainty is also being experienced in the stock market, with dramatic and volatile moves in the last several sessions. Many believe that the much anticipated "market contagion" might be soon upon us, with the all the resultant benefits for the holders of Gold and Silver to follow.
The DollarThe denomination of currency bills being produced by the Bureau of Engraving and Printing indicates that they anticipate a future need for more high denominated bills and fewer low denominated bills. They will be making fewer $1's and $5's, and more $10's, $20's, $50's, and $100's, as seen here. I have often said, that someday the "Dollar Store" might have to be renamed the "Ten Dollar Store". If you think about it, it was the "Five (nickel) and Dime" stores of old, that are the new "Dollar" stores of today. Already there are indicators that many "Dollar" shops might be forced to raise their prices or reduce choices.
MidtermsWith the results of the most recent election still fresh in our minds, many are still trying to figure out what it all means. One thing it certainly means is more uncertainty. With the House and Senate in opposite hands, perhaps more gridlock is the order of the day. With the animosity and vitriol displayed towards the President by those soon in control of the House (and vice versa), we might be in for a wild ride. Internationally, the view might turn more negative on the United States, as it becomes less clear who will have the ability to make deals or speak authoritatively for the U.S. The domestic turmoil might make our currency and markets a less attractive place to invest, which would have a negative impact on the value of the Dollar and direction of interest rates.
The Rising MarketEven if we assume the best of times and rising markets, it is still possible to lose more from a devalued Dollar than you can make from a rising stock or real estate market. But today we find ourselves in something that looks more like troubled times, than the best of times. If the Dollar loses value in the best of times, what does it look like when times aren't so good? How is it possible for Gold to increase from present levels to $3,000 per ounce? Since 1970, the markets have had a meteoric rise. But compared to Gold, the Dollar has had a tremendous rout. In Dollar terms, Gold has increased by 3,800 % since then. To get to $3,000 Gold requires the Dollar to lose only 240% compared to Gold. In other words, if the Dollar declines only 6.5% as much as it has since 1970, we will be at $3,000 Gold. This doesn't seem to be much of a stretch when we consider where both the Dollar and Gold have been in the past. While we might see some weakness through the end of 2018, it could be a great opportunity to stock up on an asset that is certain to ultimately rise compared to the value of our Dollars. We would love to be your precious metals dealer and have made the process easy for you to get started today.
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