Forecast for the gold price

Fundamental assessments of the gold price

Only a few foresaw the upswing in precious metal prices after the turn of the millennium (such as Markus Mezger[1]). Comparatively many then dared to look into the future. The next table gives an overview of the assessments of gold market experts on the development of the gold price up to the presumed peak of the current commodity and precious metal cycle, which is expected to be reached in the course of the second half of the current decade.

Gold price forecasts by gold market analysts

Source: ¹ Cash-Online.de (2009), The Gold Will Go to $5,000/ozt. - or More! (Internet: munknee.com/ 2011/06/update-these-90-analysts-believe-gold-will-go-to-5000ozt-or-more, accessed 01.10.2012).

Reaching a gold price of at least US$5,000 per troy ounce really only requires that the following trends continue roughly as expected:

• Continuation of the current commodity and precious metals cycle,
• increased awareness of the finite nature of resources,
• further loss of confidence in the paper money system,
• further increase in investment demand.

Below are ratios between the gold price and some financial market variables in numerical terms that suggest the upside still has a lot of room to run:[2]

• Gold and gold mining stocks accounted for 28% of world financial assets in 1921, 20% in 1932, 30% in 1948, and 26% in 1981. At the end of 2009, the share (including ETFs) was just 2.6% with world financial assets of nearly US$200 trillion. To reach the same share as in 1981, the price of gold would have to rise to US$12,000.
• In order to be able to cover the money supply MZM[3] of the world's 37 most important industrialized countries in the amount of US$ 53 trillion (2009) with their central bank gold, a gold price of US$ 58,000 would be required; if the entire gold available worldwide could be used, it would have to rise to US$ 13,000 thousand.
• in 1980, 45% of the U.S. money supply M1 was covered by central bank gold, in 2009 it was still 5%. The gold price would have to rise to over US$10,000 to reach the 1980 coverage level.
• Government, bank and corporate bonds amounted to US$ 92 trillion worldwide at the end of 2009. The gold price would have to rise to just under US$60,000 to fully cover the bond market with central bank gold available worldwide.
• in 1938, 55% of U.S. debt was covered by the Federal Reserve's gold holdings, in the early 1980s it was 17%, and in 2009 - despite a fivefold increase in the price of gold since 2001 - it was only 0.6%. The price of gold would have to rise to $200,000 in order to cover the $52 trillion (3.7 times the 2009 U.S. gross domestic product) of U.S. household, government, corporate and bank debt with Federal Reserve holdings.
• The global derivatives volume at the end of 2009 was US$690 trillion (US$260 trillion in mid-2006), 10 times the world's real estate assets at the time, more than 10 times the world's gross domestic product, 14 times the world's equity assets, 125 times the value of total physical gold holdings, and 1,750 times the value of the world's physical silver holdings.

The chart shows the gold price trend since 1900 and the possible trend in the coming years. A logarithmic functional form was chosen because it clearly shows the relative change. We are already well beyond the US$ 1,000 mark. Until the US$ 5,000 mark is reached, it is therefore only a question of the remaining increase at the right edge of the graph.

Gold price development

Source: Own calculations and presentation based on data from Markt-Daten.de (internet retrieval, dated 01.06.2012).

In the 1970s, the gold price increased 24-fold (from US$35 to US$850). In relation to the lowest price of US$ 250 in 2001, it would therefore only have to increase by a factor of 20 to reach US$ 5,000 per troy ounce of gold. The intermediate high of the gold price in 1980 (nominally US$ 850) corresponds, deflated by the official inflation rate, to a present-day real value of US$ 2,300. If, on the other hand, one deflates using the calculation method applicable in 1980, the result is a real value of US$7,500. The average of these gold prices adjusted for inflation using different methods results in US$5,000. According to calculations, a gold price of US$ 5,000 would also be necessary to cause a significant expansion of the range of underground resources.[4] Gold prices of US$ 5,000 can also be derived with the help of the Eeden-Müller gold price theory as well as on the basis of the Dow gold ratio and the gold-oil ratio.

Book & eBook "Gold & Silver for Beginners" free for you

"An exciting and educational book that will spark interest in investing in precious metals even for people like me who have never studied the subject before." - Concluded the editor, who subsequently bought gold for the first time.
What are the pros and cons of precious metals? Which bars and coins are recommended and why? What are typical beginner mistakes and how can you recognize a reputable precious metals dealer? Where and how to store precious metals safely? To these and many other questions (not only) beginners will find answers and tips in this approximately 200 pages comprehensive basic reading of precious metals expert Tim Schieferstein on the subject of gold and silver.
With this book we would like to carry out clearing-up work and make so the entrance into a capital investment in precious metals easy. Therefore GoldSilberShop.de gives both the eBook and the printed book to you! Secure your copy today!

Request now free of charge