As gold has marched higher throughout the last decade, there has been no shortage of market predictions for gold prices. I remember when $1,000 once seemed like a radical prediction. Then it was $2,000. Then it was $5,000. As you might guess, $10,000 was the next magical number being predicted.
Gold now seems like a bargain at $1,000. And the $2,000 level was nearly hit recently. Will we look back a couple years from now and say gold would be a screaming bargain at $2,000? That could very well happen. I think gold will continue moving higher, but I have no idea where this market will end. However, several people have been calling for gold to move to $10,000 and I have to wonder if this is just a marketing ploy or there is some solid analysis to back-up these predictions. Are these people just radical gold bugs or do they have a legitimate basis for their price predictions?
I wanted to get into the head of one of these people, so I spoke with Nick Barisheff atbmgbullion.com. He recently wrote a piece aboutGold’s Long Road to $10,000. I quickly realized Nick is a wealth of information on economics and the gold market. He made some very good points about the federal debt, gold being used as a currency, investment demand for gold and many of the financial problems in the US and around the world that we have been talking about for some time.
He did explain that his prediction for $10,000 wasn’t really a hard prediction. It was more of an overall trend prediction. Basically, if we stay on the same course we have been on for years, then he believes gold will continue moving higher. I agree completely with that. However, Nick did say that gold hitting $10,000 in about 5 years is a real possibility.
The point that hit home the most for me is when he talked about the amount of gold above ground is nearly $2 trillion. There are about $250 trillion dollars in investments around the world, not including real estate. Less than one percent of those investments are currently in gold. A shift to 2, 3 or 5 percent would lead to a dramatic run in gold. Much of the gold in the world is not for sale, so there is only so much to go around. Therefore, you could have a lot of money chasing a small amount of gold.
It is not difficult to imagine a scramble to buy gold if the dollar continues to deteriorate. Same thing if and when another financial crisis arises in the US. The crisis in the Eurozone is currently fueling the rally and many investors feel it is only a matter of time before the US starts to face the same issues. Printing more dollars has bought the US some time, but how long can this continue? The longer the economy stays weak, the more dollars the government will probably print to prevent major downturn. The dollar will probably continue to decline and this means more inflation and higher gold prices.
I have to say there weren’t any radical thoughts in my discussion with Nick. It is currently difficult to imagine gold moving to $10,000, but it was difficult to imagine gold moving to $1,900 when it was trading at $300. There was a great amount of economic logic and facts to back his argument.
I had to ask if he thinks this would be another bubble market and gold prices will eventually crash like they did in 1980. He feels that will not be the case this time. There will probably be some major setbacks along the way, but it is unlikely politicians will get their act together. We can probably expect more of the same and that is irresponsible fiscal and monetary policy. Gold will thrive in this environment as is has for years now. Gold will probably also become more of an investment asset class, which means more investment demand. I’m not saying gold will get to $10,000 in the next 5 years, but I’m not saying it won’t either.
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