Gold At $4000 - What Will It Take?
For that to happen will require something almost unbelievable - if you expect gold to be at $4000 anytime soon, that is.
The problem with most predictions for higher gold prices is that they fail to account for the financial and economic turmoil that would accompany those higher prices.
What is so unbelievable that would need to happen for gold to go to $4000 oz.?
For that to happen, the U.S. dollar would have to lose fifty percent of its current purchasing power. That means that consumer prices would have to double. There are those who think that is a likely possibility. Maybe they are right; but how soon and how quickly?
Additionally, what would be the effects of such an event? Those effects would be lot worse than anyone wants to admit - if the U.S. dollar loses fifty percent of its current purchasing power in a short period of time.
A loss in U.S. dollar purchasing power shows up in the form of higher prices for goods and services. This has been happening for over one hundred years.
Most people refer to the higher prices for goods and services as inflation. It is not. The higher prices are the effects of inflation (debasement of the money supply by government and central banks), which was previously created by the Federal Reserve.
A century of Federal Reserve inflation has erased ninety-nine percent of the U.S. dollar's purchasing power. That means that the cost of living today is approximately one hundred times as much as it was a century ago.
The price of gold is also one hundred times higher than it was a century ago. Gold is original money and a store of value. Its higher price reflects the accumulated loss in the dollar's purchasing power.
The loss in the dollar's purchasing power has happened slowly; at times very slowly. The corresponding rise in gold's price has happened slowly and erratically; and always after the fact.
$4000 GOLD - GOOD PART
Let's say you expect gold to go to $4000 oz by sometime during the summer of 2024, about one year from now. In order for that to happen, there would need to be a hugely damaging increase in consumer prices in a very short period of time.
The shorter the time period, the more damaging the economic effects. Food prices doubling, gas at $10 per gallon. Rent, automobile prices, almost everything would be affected.
You should expect social unrest, political turmoil, strikes, shutdowns, demonstrations, and worse.
A fifty percent loss in U.S. dollar purchasing power equates to a doubling of consumer prices. A doubling of the gold price from $2000 to $4000 would compensate you for that increase in the cost of living; that's about all, though.
$4000 GOLD - BAD PART
If anything, resembling the above scenario happens, it is possible that the U.S. dollar might collapse entirely. That primarily depends on how quickly things deteriorate. If people no longer want to hold dollars and merchants are no longer willing to accept them, then things would be infinitely worse.
Your gold will be priceless. No one will care what the $ price is. What will be important is that you bought it before all of this happened and held it.
But if there is no price for your gold, how will you know how much it is worth? What can you buy with it?
PURCHASING POWER OF GOLD
Gold is real money; original money. It is a long-term store of value. Under the conditions described above and over long periods of time, the purchasing power of gold remains stable and consistent.
In other words, one ounce of gold today has similar purchasing power to one ounce of gold fifty or a hundred years ago. It is reasonable to expect that to be the case in the future, too; under any conditions.
Expecting more from gold, however, is unrealistic and possibly foolish.
VALUE OF GOLD
Gold's value is in its use as money. Its higher price over time is a reflection of the deteriorating condition of whatever currency it is priced in.
Gold's higher price tells us nothing about gold. Over time, its higher price correlates to the loss of purchasing power in the U.S. dollar - nothing else. (see Gold Gains In Price Only - NOT In Value)
At $2000, gold reflects the ninety-nine percent loss in U.S. dollar purchasing power that has already occurred. In other words, at $2000 oz., gold is neither underpriced nor overpriced.
Further increases in the gold price of significance and duration can only come after further losses in U.S. dollar purchasing power.
If you are betting on a much higher gold price in the short term you are by definition expecting a collapse in the U.S. dollar.
If a collapse in the U.S. dollar is not something you expect shortly, then expecting a much higher gold price in the short term is unrealistic. (also see The Gold Price And Inflation)
Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED!