Gold $2000: Old Ceiling, New Floor

Apr 5, 2023

Gold $2000… Old Ceiling - New Floor

Why gold could hit $3600 per ounce within next 12 months

Gold prices at the $2000 per ounce level have long been a psychological barrier.

In August 2011, gold nearly hit the $2000 price point for the first time, reaching $1925 per ounce, due to the US Congress's failure to pass the debt ceiling.

It was a fear-based trade and occurred when interest rates were 0%.

Gold prices first broke above the $2000 barrier in March 2020 due to the coronavirus crisis.

It was a fear-based trade made at a time when interest rates were 0%.

Last year, once again in March, gold prices broke the $2000 ceiling in response to the war in Ukraine.

It was a fear-based trade made when interest rates were 0%.

This past week, gold prices have again broken the $2000 barrier. The most recent rise has come amidst a perfect storm of fear.

1. Geopolitical Tensions
2. Recession Worries
3. Market Uncertainty
4. Banking Crisis
5. Stagflationary Concerns

It would be easy to suggest that these “fears” are what has driven gold prices through the $2000 ceiling once again. Except there is one major difference.

Today the Fed Funds rate sits at 4.75% and is likely to be raised higher to 5% in the coming weeks.

This is Jerome Powell’s worst nightmare.

JPow is now forced to raise interest rates into what are deep recessionary signals while gold prices mock him and sit indifferently above $2000 per ounce.

Oh, if only there was an expert that could have predicted why rising interest rates were the main catalyst for higher gold prices.

Oh wait, there was. It was us.

This, in fact, was the main premise of Gold Is A Better Way.

Despite the reality that “market experts” have forever argued that higher interest rates were bad for gold prices, we provided proof otherwise.

Higher interest rates drove gold prices eight times higher in the 1970s. Higher interest rates drove gold prices eight times higher in the 2000s. We predicted that higher interest rates would drive gold prices eight times higher between ‘18 and ‘28 and why we predicted that by 2028 the price of gold would reach $10,000 per ounce.

What was our argument?

It’s All About The Costs.

Most people confuse "the why" about gold. They think its price is determined by the level of our national debt. We made the case that it’s not the level of debt that matters. It’s the costs that drive gold prices.

The chart below was presented on page 77 of Gold Is A Better Way. The book was published in August ‘18 when the price of gold was under $1200.

Bottom line? Gold is a fiscal asset.

It doesn’t respond to the “level” of national debt. Gold prices move in accordance with our costs to service our debts.

We must consider the new inputs. Our national debt hovers near $32 trillion. Interest rates have since been raised to nearly 5%..

This means that our costs to service our debts are exploding. So too is the price of gold.

Over the course of the last few years, the costs to service our national debt have risen from $500 billion to over $850 billion. Worse still, Biden’s Build Back Better policies have pushed our annual budget deficits to roughly $2 trillion all while Jerome Powell is jacking up interest rates.

Here's the rub.

Powell cannot easily cut rates anytime soon because inflation is real. This means we only get a Fed pivot and cut if we are in a serious recessionary crisis.

It’s why we see $2000 gold as the new floor.

Since the publication of Gold Is A Better Way, gold has outperformed other investment options, confirming the book's title. This marks the initial phase of a long-term bullish market, during which financial assets have also experienced growth.

We are now entering into a recession. The following chart is courtesy of Larry McDonald of The Bear Traps Report. PMIs and ISMs below 50 indicate recession.

It’s not just PMIs and ISMs that we are tracking. Another leading recession indicator is the copper-to-gold ratio.

The copper-to-gold ratio is a financial metric that compares the price of copper to the price of gold. The ratio is calculated by dividing the price of copper per ounce by the price of gold per ounce.

The copper-to-gold ratio is often used by investors and analysts as an indicator of economic health, with a higher ratio suggesting economic expansion and a lower ratio indicating economic contraction. This is because copper is used extensively in construction and manufacturing, so demand for the metal tends to increase during periods of economic growth. In contrast, gold is typically viewed as a safe-haven asset, and its price tends to rise during periods of market uncertainty and economic downturns.

Since June ‘22, the copper-to-gold ratio has steadily declined, falling more than 20% from 0.24 to 0.19 today.¹ This indicator warns of very rough sledding ahead.

We see the recent move higher in gold prices as a result of an imminent U. S. recession.

It’s why we should be aware of another ratio. The Gold/Equity ratio.

The Gold/Equity ratio is an indicator that measures the valuation of financial assets relative to gold prices. To get the number, we simply divide the S&P 500 by the price of gold,

$2028 / 4100 = 0.49

When gold prices peaked more than eleven years ago, in 2011 the ratio stood at 1.58 ($1925 / 1215).

The historical average for this number is 1. ²

We firmly believe that we will see gold prices rise to $3200 per ounce as recession becomes the main narrative. We see this as occurring at the same time that the S&P 500 falls back to fair valuations closer to 3200 points.

This is not financial advice, or a recommendation to buy or sell any security. It’s simply our rationale for why we could see a major shift as financial assets fall while gold prices continue to surge higher.

It’s not a new conclusion. We argued in The Great Devaluation that the coming pain would remind many of the banking crises that occurred during the Great Depression. We see a very strong correlation between then and now.

The solution to the banking crisis 90 years ago was FDIC insurance, which backed all bank deposits up to $2500.

Ninety years later, the FDIC insurance stands 100 times higher at $250,000.

Do pay attention!

Gold prices were $20 in 1933. They are now 100 times higher, at $2000.

Exactly one supercycle since, and we are witnessing banking failures reminiscent of 1933.

The solution from here is nearly identical.

The Federal Reserve has effectively raised the deposit insurance to infinity to cover all deposits. It’s an unlimited backstop, and begs the question, if deposit insurance is now unlimited, what’s the new limit on gold prices?

When this first happened in 1933, the next move was a 40% devaluation of the dollar against gold. This occurred within 10 months of the emergency creation of the FDIC and took the price of gold from $20 to $36 with the swipe of a pen overnight.

The same move today would move gold prices to $3600 per ounce by January 2024.

We are not alone in this viewpoint. Experts everywhere are now predicting gold prices will continue to rise from here.

Now that the $2000 ceiling has become the new floor, the next leg higher could come very quickly.

It’s nothing we haven’t always expected. We remain steadfast in our belief that a monetary reset, one which resets the gold price at $10,000 per ounce, is the only viable solution to rebalance the global financial system.

It may also be the only way to avoid World War III.

Source: https://www.cnbc.com/2022/12/22/gold-at-4000-analysts-share-their-2023-outlook-for-prices.html

Sources:

1. https://en.macromicro.me/charts/15943/copper-gold-ratio

2. Gold Is A Better Way

Written by Adam Baratta

© 2023 Gold is a Better Way

Customer Support:

888-805-0797 |

Terms & Conditions |

Privacy Policy