Gold’s Inevitable Rise to $2,000
Gold’s rise to $2,000 is inevitable.
I have to confess; that’s not something I always believed. I wasn’t sure we’d ever get to that level… at least not in my lifetime.
Of course, I didn’t think we’d see Great Britain break apart from the EU, negative interest rates, or a Trump presidency.
And yet, here we are.
You might say I have a lousy track record, but I’d say I’ve learned my lesson.
We live in extraordinary times. I now understand just how extraordinary.
The more I look around, the more news I read, the more analysis I write, the more convinced I am that $2,000 gold is just around the corner.
I don’t mean tomorrow, or even this year, but by 2020.
If I were a bookie, I’d put the over/under at 2018.
There are two reasons why I believe this…
The first is fundamental: There is a huge supply problem in the gold market. We’re heading towards a production shortfall that will fail to meet surging demand.
The second is political: Simply put, the world is on the brink.
I’ll talk about the supply issue first.
Gold’s power, its value, is supported by one simple fact: There’s only so much of it to go around.
There’s only so much gold in the world. So, eventually, our mines will run dry.
That won’t happen overnight. It will happen gradually, in a multi-year process. And that process has officially begun.
Global gold production hit a record high for seven consecutive years from 2009 to 2015. But 2016 is shaping up to be a different story. After edging up just 1% in 2015, gold production is on track to decline 3% this year.
And according to the top minds in the industry, production is only going down from this point on…
“I don’t think we will ever see the gold production reach these levels again,” Chuck Jeannes, president and CEO of Goldcorp, recently told the Wall Street Journal. “There are just not that many new mines being found and developed.”
Indeed, exploration spending has increased tenfold over the past decade, but the level of new economic discoveries has remained pretty much flat. Worse, the gold that is being discovered is of a substantially lower grade and significantly more costly to extract.
Kelvin Dushnisky, president of Barrick Gold, the world’s largest gold miner by annual output, told the Financial Times: “Falling grades and production levels, a lack of new discoveries, and extended project development timelines are bullish for the medium and long-term gold price outlook.”
Here’s some more testimony from Nick Holland, chief executive South Africa-based miner Gold Fields.
Describing the industry’s sudden change in mood, Holland said rather glumly: “We were all talking about how production was going to increase every year. I think those days are probably gone.”
And Vitaly Nesis, chief executive of Polymetal, a UK-listed gold miner, tells the FT: “The fourth quarter last year was in my opinion the peak quarter for fresh global mine supply. I think supply will drop by 15 to 20% over the next three to four years.”
That would be an astounding drop in production.
And it’s coming precisely at a time when the global monetary system is hanging by a thread.
Disunity, Dysfunction, Disorder
That’s what brings me to my second point — the one about the world being on the brink.
The very foundation of the current global order, the one that has ensured relative peace since World War II, is cracking.
The United States, so long the world’s guiding light, has all the glow of a dying star. Our government has been swamped with debt and paralyzed by corrupt politics. Our influence and standing in the world has been undermined by bad decisions and directionless leadership. And our social fabric has been shredded by the scissor blades of race and class.
It’s an ugly scene, and turning my gaze to the outside world, I see no comfort or assurance.
England has reneged on its commitment to the whole of Europe. There, like here, ethnic, religious, and class divisions have beaten back the tide of globalism. What we thought of as the “Western” world is disintegrating, as each individual country pulls in a direction of isolationism and autonomy.
The resulting uncertainty and doubt is now taxing the economy.
Since the Brexit, more than 500 economists across Asia, Europe, and the Americas have downgraded their global growth forecasts.
According to the IMF, global economic output will expand by just 3.1% this year. And that’s only because countries around the world have turned to such extreme measures.
Central banks are tampering with monetary policy in ways that have never been tried before. Some have turned interest rates negative, while others are aggressively devaluing their currencies. And governments are spending trillions of dollars to stimulate artificial growth.
The ECB has cut its benchmark lending rate to zero, and is buying 80 billion euros ($88 billion) in bonds each month. And Bank of England Chief Economist Andrew Haldane has said the central bank needed to come up with a “package of mutually-complementary monetary policy easing measures” in time for a rate-setting meeting on Aug. 4.
Japan is planning a “helicopter drop” of money. The government is crafting a massive spending package worth about $190 billion to bolster the economy — something it plans to pay for by borrowing money from its own central bank.
Meanwhile, the People’s Bank of China (PBOC) has cut interest rates seven times since 2014. And its economic growth target is still just 6.5% to 7% for 2016. That’s about half the 12% pace China’s economy grew in 2012.
And speaking of China, have you seen the recent headlines regarding the South China Sea?
Basically, the country is rapidly expanding its territorial reach at the expense of its neighbors. This is something other countries (i.e. Russia) have gotten more assertive about amid all the global chaos — terrorism, civil wars, and coups.
With all of this, another war between major global powers has suddenly transformed from an unfathomable horror to a realistic one.
Like I said, we live in extraordinary times.
Where, then, can one turn for safety and stability?
In short, gold.
Investors need gold now more than ever. And as it happens, we’re running out fast.
Personally, I’m getting in now… before it costs $2,000 per ounce.