Gold Is On Its Way To $20k
We are in the earliest stages of a gold bull market that will be measured in decades. A principal reason is it took decades to get us where we are today.
Not many investors truly understand how broken the supply chain is for gold. Sure more investors are seeing the prices going up, but for the most part they don’t understand why.
The basic reason is that due to long term underinvestment, the mining sector has neglected exploration to find new gold mines. Which are then built to create new production that replaces what is mined out each year.
Head grades at mines have been in decline for many years so those mines are mining lower grade rock. They would prefer to mine higher grades but they have to take what the rocks give them.
It takes many years to permit new mines. The miners have to go to more remote locations to find lower grade mines. If they pass all of those tests, then they have to come up with a lot of money to build the new mines and operate them with higher costs.
The gold miners have to deal with long timeframes to permit and build the mines and the costs of building gold mines these days start at a billion and go up from there. Plus, the input costs to mine the rock has gone up. These days, the average cost of producing gold has risen to an industry average around $1400 per ounce.
These various factors are why gold production has peaked and will go into decline, despite record prices of gold. Even if gold goes up multiples from where it is today. That is exactly what is going to happen due to supply chain problems and strong demand for physical gold.
Whether politicians and central bankers in the West want to recognize it or not, there is a worldwide Death Spiral of Debt. Since they went off the Gold Standard, the global economy has been built on debt. Which has gotten so extreme that the US is on a path that servicing the debt will become its biggest expense in not too many years.
America has a debt to GDP ratio of over 120%. This metric used to be something that basket case economies had, certainly not the largest economy in the world.
This is what happens when you take the country off the Gold Standard and let politicians and the Fed have a perceived unstoppable money printing press and unlimited credit card.
The pendulum has swung too far and we get what we have now, a Death Spiral of Debt. Now it will swing back in the other direction to “old fashioned” economics and the world will return to the Gold Standard. Not because the politicians and central bankers want to, it will be because they have to.
When Reagan came into office the US was the largest creditor in the world, after two terms in office the country became the world’s largest debtor. He said that the new debt created during his presidency was his greatest disappointment. But, successive presidents didn’t learn from his disappointment, they kept making new records in creating debt.
After the 2008 GFC, the debt growth went into overdrive during the Free Money Era. Brought to a theatre near you by the Fed and prolific spending by politicians. Now the debt is $34 trillion and on a path to be $40 trillion by the end of the next president’s first year in office and by the end of that term likely $50 trillion. The Death Spiral of Debt is locked and loaded.
Another pendulum that has swung too far is King Dollar’s power that has been heavily diluted from the printing press. For way too long the US took advantage of the US dollar being the world’s reserve currency and the dominant currency used for world trade.
This kind of power paved the way for “esteemed” economists to say that the US debt could never be an unfixable problem because they had the world’s reserve currency and could print their way out of it.
The Death Spiral of Debt and excessive money printing has caused the pendulum to reach its limit of swinging too far.
The central bankers in the BRICS nations see these problems and to their credit are preparing for the ramifications. The central bankers in the West are not. The BRICS nations are selling their US debt and US dollars while building up their gold reserves.
Not only do they see the Death Spiral of Debt problem, but they also want alternatives to the US dollar as the dominant currency for world trade. They are already starting to do more trade in their domestic currencies which will continue to grow. But, this has its limits because they don’t really trust each other's domestic currencies. What they do trust is gold. In the past, gold played a significant role in world trade, it will again.
If you think this is farfetched I’m really going to blow your mind.
In order for the world to return to the Gold Standard, and to make gold the world reserve currency, plus the dominant currency for world trade, gold will have to go up multiples from its current level.
Before I say how high I could see it go, I will try to put it into context. Currently, America has a couple percent of its debt backed with gold. To get up to a more reasonable level, they would pretty much overwhelm the supply of physical gold.
While the BRICS nations have been increasing their gold reserves, which is still a small fraction of their debt, they have driven gold to new record highs.
For the world to get off the Death Spiral of Debt, and return to a realistic Gold Standard backing a significant portion of the debt, plus replace the US dollar with gold as the world reserve currency, and have gold as the dominant currency for world trade, will require much higher gold prices. Even if they only partially make these changes, gold is going much higher.
Do I think gold could go up to $20k over the next 10 years, I certainly do.
To see that happen, there are some milestones that we will have to jump over. For example, first we need to go over $3000. I think we can easily see that happen this year.
Then, $5000 will be the next hurdle which could happen by the end of 2025. If that happens, then we will be in a powerful gold bull market, purely driven by weak supply and strong demand. The next $5000 move to $10,000 will likely happen within five years. This would put $20,000 within reach 10 years out.
Along the way, we will have pullbacks and rallies, the pullbacks will be mild and last a short period of time, while the rallies will be powerful and last longer.
I know, I know, this sounds like the crazy dreams of a gold bug. But, keep in mind, I have never during my entire career as a market commentator, since 2005, made such bold gold predictions.
Here is the real secret sauce. If I’m only partially right, the depressed valuations in high quality gold stocks will enter a powerful gold bull market like never before. We are starting to see signs of it already happening. I can see it in the best in class majors, developers, junior miners and explorers.
I had a front row seat during the 2001 to 2011 gold bull market. It was a magical time for gold stock investors. The fundamentals of supply and demand are even better now. The stage is set, you may want to get your tickets to the golden show.
All the best,
Allan Barry Laboucan
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