Disclaimer: The content from The Daily Reckoning Australia’s global cast of characters is their own view and opinion. It is not to be taken as investment advice.
Gold to reach $10,000? You bet
The end of the year countdown is on.
The pressure has increased somewhat as we all try to cram five weeks’ work into three.
And right in the middle of that, I took a sneaky holiday with the family.
Although in saying that, I probably read more financial news sites poolside in the last two weeks than I have in the last two months. The lack of rushing here or there meant I really ‘got into’ everything I read.
Of course, it goes without saying I never really took my eye off the gold price.
In fact, I got a little too excited when I woke up one morning to discover gold had cracked above US$1,220. And I was even more excited four days later to see gold storm above U$1,240.
However, one of my big predictions for 2018 was that gold would crack US$1,400.
But it didn’t.
What went wrong?
The gold floor is in
At the start of the year, I expected gold to trade above US$1,300 per ounce and then move another one hundred dollars higher from there.
It wasn’t until September and October that I realised we weren’t going to see that rally.
The May to October sell-off in the gold price drove the metal down to around US$1,180 per ounce, which I predicted.
But there was no real catalyst to push the metal out of its funk.
For example, the Federal Reserve Bank made it clear in 2017 that there would be four rate increases this year. We have already had three so far. And the December Fed meeting begins tonight our time. The markets are expecting the Fed to jack up the right once more.
Now, gold would typically rally on the backdrop of rising rates. But it didn’t this time.
After discussing the lack of rally with my colleague, Jim Rickards, we both reached the same conclusion. The rate hikes from the Fed were already priced in.
And if the Fed does raise rates again tonight, we can expect more of the same for the gold price.
That is, the rate hike is already ‘priced in’ to the current gold price.
So we won’t see a shock reaction from the gold price this week.
But that’s okay.
Because what’s happening now is part of a much bigger movement.
Today’s gold bears look like yesterday’s Bitcoin bulls
With no real gold price rally around yet, both Jim and I are still as bullish as ever on the gold price.
Why? The gold price falls are done.
As I have explained in the past over at Hard Money Trader, the May to October fall was a 10% price correction.
Something that is integral to a particular phase of the gold bull market.
With that out the way, the yellow metal has bottomed for good.
And 2019 is setting up to be a VERY exciting year for gold.
What we are witnessing now is really part of a much bigger trend unfolding.
Today’s short-term price movements are part of Jim’s long-term forecast of gold moving towards US$10,000 over the years to come.
In other words, we are witnessing the early days of a decade-long trend.
Although that seems like an absurd claim.
Especially when the yellow price is down 5.6% for the year.
But I’ll let you in on a secret.
This time last year, Jim was telling everyone that Bitcoin was a bubble, and that it was going to fall 90% in value. Actually, his exact words were:
‘Bitcoin is an unprecedented mélange of fraud, mania and a Ponzi scheme all in one. The Bitcoin price could go higher in the short-run, but will also end in tears, with 90% losses for naïve “investors” from around the world lured into an artificially pumped-up mania.’
Jim wrote that on 17 December, 2017.
At the time, he wrote that the Bitcoin price traded at US$18,829 (at the time, that was AU$25,400).
Remember, this was a time when most people were claiming that Bitcoin was going to crack twenty grand per coin. And march all the way up to US$50,000 in a matter of months.
So Jim’s call of a 90% fall was way out of left field. Most people were too busy buying into the mania. Bitcoin was the future, and Jim’s idea was too left-of-centre for them to comprehend.
Anyhow, twenty-four hours later, Bitcoin peaked at US$19,378 (the price in Aussie dollars was actually AU$25,026 on this day).
That happened almost exactly one year ago. And today, the Bitcoin price is US$3,339 (AU$4,621). An 82% fall in almost exactly one year.
Okay, so that’s not a 90% tumble. But jeepers, it’s pretty darn close.
Predicting the impossible
My point to this story is that the case for ten grand gold is strong.
The reason why most people don’t believe it is that it goes against everything we think we know about the markets right now.
An ounce of gold for $10,000 seems absurd.
But tell a Bitcoin bull caught up in the bubble hype last year, and they would have said a Bitcoin fall was impossible.
The problem for gold, says Jim, is that the ‘“steady Sadie” performance the past two years has been overshadowed by much more spectacular gains in stocks and Bitcoin.
‘Bull markets begin slowly, almost unnoticed in the gloom of the prior bear market. The biggest gains often come after a few years when the crowd catches on and the price action gains momentum.’
He even went as far as to say that US$10,000 per ounce is possible as soon as the mid-2020s. Adding that gold is one of the most forward-looking macro indicators available.
But here’s the important takeaway of this.
Jim called the unravelling of the Bitcoin bubble when most people said it still had longer to run.
He ran against the mainstream then.
And he is running against the mainstream right now.
Sure, I get how crazy ten grand an ounce for gold sounds.
But the yellow metal has shocked the market in previous bull runs.
And this one will be no different.
Until next time,