How high will gold go in this bull cycle?

Many technical analysts look at a twenty year chart of gold during the current bull market in gold, and project gold to make a new high, exceeding the $1,917 high of August 2011.
By: Dr. Steve Johnston
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* Brookings - Oregon - US

BROOKINGS, Ore. - June 15, 2020 - PRLog -- Gold only hitting a new high is a superficial analysis. Technical analysis and high-frequency algorithmic trading can be effective in short term trading, but are not well suited for making long term predictions  This is why hedge funds and mega wall street banks tend to blow up during major crashes.  Algorithmic trading programs can create flash crashes and tend to make markets more volatile.

An excellent gold standard of gold studies is the annual report "In Gold we trust"  produced by an investment firm Incrementum AG based in Liechtenstein. This is a report which combines technical and fundamentalist analysis of gold prices. While many analysts are bullish on gold after the Federal Reserve announced its open-ended quantitative easing programs, a more significant factor is the projected rise in debt as a percentage of GDP. With an anticipated $3.8 trillion U.S. deficit in 2020, and a $2.1 trillion dollar deficit in 2021, the national debt will increase by $5.9 trillion in the next twenty four months. The Federal Reserve is not doing finite amounts of quantitative easing like it did with QE1. This time, it is going to an almost infinite amount of quantitative easing. QE1 was $2.3 trillion.  QE4 is $6 trillion and counting. Goldman Sachs believes the growing amount of debt the Treasury must issue to finance the U.S. deficit's will require the Fed to increase QE4 to fund the coming tsunami of new debt that will be issued by the Treasury.

The current QE required to fund current deficits will be added to the existing Fed balance sheet, which had a starting place of $4.52 trillion in 2016.  The Fed balance sheet is expected to exceed $10 by the end of 2020. Once the economy begins to recover and velocity picks up, the expansion of the monetary base will transmit into devaluation of the dollar, inflation and the rise in the price of gold. Actually gold is money, and fiat money is inevitably devalued by sovereigns.

B of A sees gold hitting $3,000 in 18 months. Incrementum AG in their "In Gold We Trust" report, sees gold conservatively hitting $4,800 in U.S. dollars by the end of 2030, based upon an accumulation of deficits, and "modern monetary theory" developed by the Polish Neo-Marxist economists, Michael Kalecki (1899-1970), who believed deficits do not matter.

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Steve Johnston
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Location:Brookings - Oregon - United States
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Page Updated Last on: Jun 15, 2020

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