Gold May Reach New Record Highs by 2020

Release Date: 
Friday, October 23, 2015

Gold and Silver Prices
Gold prices recovered some of its earlier losses during Friday trading following a surprise interest rate cut by China and the prospect that the Eurozone may implement new stimulus measures to bolster its flagging economies.

“Gold prices were higher on the London spot market Friday, with the prospect of extra stimulus from the European Central Bank offering support to a metal that is typically used as a hedge against inflation… ECB President Mario Draghi said on Thursday that the bank was ‘open to a whole new menu of monetary-policy instruments’ to help jump-start the region’s economy, which has been grappling with ultralow inflation and a lukewarm recovery… Gold is expected to benefit from such stimulus, as investors seek out the metal as a store of value amid concerns that the extra money supply will stoke inflation.” (Gold Prices Higher on Hints of More ECB Stimulus,” WSJ, 10/23/15).

Further, “’[n]ews of a rate cut in China is helping support investor sentiment and precious metals,’ Georgette Boele, an Amsterdam-based strategist at ABN Amro Bank NV, said by e-mail.” (“Gold Climbs After China Cuts Rates, Draghi Hints at Stimulus,” Bloomberg, 10.23.15.)

Gold finished the week down $13.70, closing at $1,165.00. Silver prices closed the week at $15.91, down $0.15.

Gold May Reach New Record Highs by 2020; Investors Should Buy at Current Prices - Christenson
Gary Christenson, the owner and writer for the contrarian investment site “Deviant Investor,” explained to investors that a dollar decline and geopolitical moves away from the dollar will soon lead to record gold prices.

“The last dollar high (February 2002) was followed by about 6 years of declining dollar prices until it hit a cycle bottom in 2008… If that 6.5 year dollar high-low cycle continues, it suggests a dollar low in 2021. The world will be quite different after six years of dollar decline against other currencies and gold. Gold and silver prices will benefit from a multi-year dollar decline...

“Geopolitical Fundamentals:  While Russia is bombing ISIS in Syria and consolidating their influence in the middle-east, the US bombed a hospital in Afghanistan and changed the ‘spin’ on the story at least four times.  This could be symbolic of a decline in US leadership and political influence in the middle-east and the beginning of a long-term decline in the US dollar. China has initiated a global alternative to the SWIFT system – the China International Payments System (CIPS).  This will weaken US global financial control and weaken the US dollar influence on global trade and other economies… Support for the US dollar has been based on the ‘petrodollar’ – required purchases of crude oil with dollars – and the US military – accept US Treasury debt in exchange for your goods and oil or face consequences.  Both of these supports for the dollar are clearly weakening, and that indicates additional dollar decline, or collapse, in the years ahead.

“BOTTOM  LINE: Expect continued US dollar weakness for several years… Expect gold and silver prices to benefit from dollar weakness and US geopolitical difficulties. $5,000 gold will not happen this year but it is quite possible by the election in 2020.  Much higher prices are likely if central banks and governments choose to push the US into a hyperinflationary collapse. And finally, buy gold and silver while supplies at these repressed prices … are still available.” (“US Dollar Decline Cycle,” Gold-Eagle, 10/21/15; original emphasis.)

“Radical” Government Monetary Policies Will End Badly; Send Gold to New Highs – Tocqueville
John Hathaway, fund manager for Tocqueville Asset Management, issued the fund’s third quarter investor letter warning that “radical” monetary policies will cause turmoil in the financial markets and send gold to new highs.

“Our thinking is that unprecedented and radical monetary policy will end badly. On this point, we are in agreement with many financial luminaries who we have cited in past letters... The effect (and possibly the design) of zero interest rates and quantitative easing has been to force investor savings into risky assets... The most obvious way for monetary policy to end badly is for investors of all stripes to suffer a prolonged bout of financial market adversity. Losses in risky assets will dissipate investor confidence, undermine economic activity, and leave the Fed with little choice other than to step on the accelerator for more easy money. It is in the midst of this sequence that we expect investors to rediscover gold in a big way…

We believe that the positive story for gold will have four distinct facets. At the macroeconomic level, it will be the impending exposure of monetary policy, and the central bankers who conduct it, as fraudulent and a threat to general welfare…

“On a microeconomic level, the positive story will be that the lack of discovery of new gold reserves by the struggling gold mining industry which, absent a significant rise in the gold price, will lead to a supply crunch. The rate of discovery of new gold is at a multi-year low and the mine reserve life currently stands at a perilous 13 years, the lowest in 30 years…

“On a technical level, the well documented shift of physical gold ownership from Western investment hands to Asian will in our opinion threaten the highly levered institutions that intermediate financial and physical gold markets…
“On a market psychology level, gold will benefit when the historically reliable cycle of descent from euphoria and well-being to discomfort and malaise starts to kick in…

“In our view, gold is exceptionally cheap at the moment because the radical monetary policies practiced by the world’s leading central banks have led to an egregious mispricing of risk by investors at large... Once investors discover that there is a bite to the “risk” in risk assets, gold could be the big winner.” (“Tocqueville Gold Strategy Investor Letter Third Quarter 2015,” 10/12/15.)

Silver Bullion Coins Scarce – MarketWatch
MarketWatch reported on the continuing silver bullion coin shortage and prospect for higher silver prices.

“Silver bullion coins are so scarce that certain countries have set limits on the amount they distribute, but prices for the metal haven’t budged much from their recent six-year low. Silver is experiencing an ‘unprecedented industrywide phenomenon,’ with strong demand for the physical metal prompting mints in certain countries to put silver bullion coins on allocation, according to The Silver Institute…

“The Royal Canadian Mint, Australia’s Perth Mint, the Austrian Mint and the British Royal Mint have all put their silver bullion coins on ‘allocation’—meaning that they are controlling the distribution of coins ‘due to bottlenecks in the manufacturing process,’ according to a recent report from The Silver Institute…

“As silver prices drop, total physical demand can soar, and this is why major national mints are now straining under the demand,” said  [newsletter editor Brien] Lundin. ‘There is very little silver currently available to meet physical demand… Once investors realize how tight the market truly is, the price will begin to rise….’” (“Silver bullion coins are scarce, but prices don’t show it,” MarketWatch, 9/23/15.)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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