Gold Prices – The Next Five Years
Miles Franklinsponsored this
article by Gary Christenson.
Breaking News: COMEX paper gold contracts closed on Friday, June 28,
at $1,413.70, up from $1,274 on May 22. Gold bottomed at $1,045 in December
2015. Silver closed at $15.25, up from $14.41 on May 29. The S&P 500
Index closed at a new all-time high on June 20.
Gold closed at its highest price since 2013
Read: Silver
Prices – The Next Five Years
What Happens Next?
- We don’t know. Gold has disappointed for years, but
central banks must “inflate or die.” Expect more QE, lower interest
rates and excessive political and central bank manipulations.
- But the more important question is: Are the
COMEX prices for paper gold a fair value for the metal, or are
they misrepresentative of what prices should be in this debt-based QE
manipulated economy?
- Should gold prices be higher or lower?
- Consider the following graph of actual gold prices (each
annual data point is the average of about 250 daily prices) and calculated
gold prices based on an updated empirical model
WHAT THIS GRAPH DOES NOT DO:
- It is an empirical model, NOT a mathematical proof. It
guarantees nothing. While the model has worked for five decades, it
could become less effective tomorrow, next year, or never.
- The model does NOT use gold or silver prices to produce
calculated gold prices.
- It is NOT a price prediction for paper gold contracts on
the COMEX.
- It is NOT a timing model. You shouldn’t TRADE based on
this model.
WHAT THIS GRAPH DOES:
- The model shows an estimated value for (annual average)
gold prices based on macroeconomic variables. It is a valuation model.
- The calculated gold model uses official national debt, crude
oil, and the S&P 500 Index as input variables.
Test the Assumptions:
- Gold prices rise, along with most other prices, as the
banking cartel devalues the dollar and pushes currency units into
circulation. A proxy for inflationary price increases is the official
U.S. National Debt adjusted for population growth.
- Official National Debt in 1971 was $400 billion. Today
it exceeds $22,000 billion – over $22 trillion. Debt and prices will
increase until the financial system breaks or resets.
- Gold prices rise along with crude oil, the most
important global commodity.
- Crude oil sold for $2.00 in 1971. Today it sells for
$55.00. It peaked at $147 in 2008. Crude oil prices rise because the
banking cartel devalues the dollar, changing supply and demand, and
because commodities are sometimes more desired than paper assets.
- Over the long-term, commodity prices, including oil and
gold, rise and fall opposite to the S&P 500 Index. When investors
favor stocks (and paper investments) commodity prices are often weak.
When commodity prices are strong, stocks are often weak. The model
assumes that gold prices are mildly, but inversely, affected by the
S&P 500 Index.
- Gold is real money, unlike the digital and paper debts
(“fake-money”) issued by central banks. Gold will rise in “fake-money”
units as the banking cartel devalues currency units by issuing
ever-increasing quantities of “fake-money.” In many currencies, gold has
already reached new all-time highs.
Assumptions Summary:
- Gold prices move higher as population adjusted national
debt increases. (Dollar devaluation drives all prices higher.)
- Gold prices move higher and lower with crude oil,
another commodity.
- Gold prices move opposite to the S&P 500 Index.
(Investor preference for commodities versus paper assets.)
- The model weighs and combines these
macroeconomic variables to produce a “calculated gold price.” Call it a
“fair value” price.
Examine the graph of gold prices and calculated gold prices for nearly
five decades. Note that:
- Calculated prices approximately match the annual average
of daily gold prices.
- Calculated prices may bottom and rally several years
before the paper gold price bottoms and moves upward.
- Calculated annual prices don’t reach gold’s high and low
daily prices because daily prices spike too high and crash lower.
- Buying for the long term makes sense when daily
gold prices are low compared to the “calculated” price. (Think early
2019.)
- Selling a portion of core positions is sensible
when daily prices are well above “calculated” prices, such as in 2011
Gold Prices in Five Years?
- I don’t know, but almost certainly much higher.
- The model depends upon national debt (will be much
higher), crude oil prices (higher in five years—probably) and the
S&P 500 Index (flat to higher—maybe).
- National debt will rise rapidly. A 100-year average
increase is almost 9% per year, every year. Current economic conditions,
no credible spending restraints, “QE to Infinity,” and the coming
recession will boost deficits and debt into the stratosphere, even
without more wars.
- Crude oil prices rise and fall. They traded below $11 in
1998, reached $147 in 2008, but moved below $30 in 2016. Mid-East
tensions and inflationary expectations are rising. It’s reasonable to
expect crude oil prices will not fall much from current levels and might
rise considerably.
- The S&P 500 has risen from 100 in the 1960s. It is
overvalued today and likely to fall, but in the long-term it will rise
as dollars are devalued. Assume it corrects and then rises slowly.
Remember, the S&P 500 collapsed over 50% after its 2007 high.
THE RESULTS:
From
an Interview with Chris Powell:
“I think the crashing point is where the Scottish economist Peter Millar
puts it – where interest on debt starts going exponential and consuming the
real economy. In a paperwritten
in 2006 Millar wrote that fiat money systems based on debt require periodic
currency devaluations to reduce the burden of interest payments. These
devaluations require upward revaluation of the monetary metals and all real
assets relative to debt and currency.
“Indeed, the U.S. economists and fund managers Paul Brodsky and Lee
Quaintance speculated in 2012 that such a devaluation of currencies and
upward revaluation of gold was already the long-term plan of central banks –
that they were redistributing world gold reserves to allow countries with
excessive U.S. dollar surpluses to hedge themselves against a dollar
devaluation. The resulting upward revaluation of gold, Brodsky and
Quaintance wrote, would reliquify central banking around the world.”
From “How
the Fed Wrecks the Economy”
“In simplest terms, easy money blows up bubbles. Bubbles pop and set off a
crisis. Rinse. Wash. Repeat.”
“The economy is loaded up with government, corporate and consumer debt.
The stock markets have been juiced to record levels. We also see other asset
bubbles in high-yield bonds, housing (again), and commercial real
estate, along with a lot of other assets you don’t hear as much about – such
as art and comic books.”
“The bottom line is that we can’t “fix” the economy by electing
Republicans or Democrats. We can’t put the country on sound economic footing
by tweaking this or that policy in Washington D.C. The only way to
put the economy on a sound footing is to deal with the root cause of the
problem — the Federal Reserve and its constant meddling.”[In the
meantime, expect larger deficits and higher gold prices.]
From Groucho Marx:
“Politics is the art of looking for trouble, finding it everywhere,
diagnosing it incorrectly and applying the wrong remedies.” [The results
include massive deficits, unpayable debt, consumer price inflation and higher
gold prices.]
CONCLUSIONS:
- The model tells us that gold prices were
inexpensive for the first five months of 2019 and are slightly
undervalued at the end of June 2019.
- Gold prices should rise in the next five years. The
model, depending on assumptions for debt increases, crude oil prices and
the S&P 500, suggests a fair value of $2,500 to $4,500 in five
years. A spike much higher, perhaps to $10,000, is not unlikely.
- Daily prices could double or triple the fair value or
fall 10% to 20% below fair value
- This model is not a prediction or guarantee. It is a
valuation model. It could lose accuracy tomorrow, but it has a nearly
five-decade history of success.
- Correlation for the annual model since 1971 is
0.97. The R-Squared value is 0.95.
- Buy when the market price is at or lower than
the calculated gold price, such as now or after the next correction.
Sell when market prices drastically exceed calculated fair value, such
as in late 1979, early 1980, and July-August 2011.
Miles Franklinwill convert
dodgy debt-based dollars into physical metal that has preserved wealth for
millennia. The gold valuation model says buy during 2019 because gold prices
are below fair value. Call Miles Franklin at 1-800-822-8080 to purchase
undervalued gold and silver bullion and coins
Gary Christenson
The Deviant Investor
