Wouldn’t it be nice to know where the price of gold will be in say, 15 years? It would be much easier to decide if investing in gold was for you if you knew exactly what your return on investment would be right?
Well of course gold investing, and any investing for that matter, is not that easy. So how can we try to tackle the question about what’s the long term gold price forecast?
First off I want to say that it is almost impossible to be right on this question. There is so many variables that plays a role and trying to predict the exact price of gold is an impossible task.
With that said there is one major point that I want to make with this article. It is that the future price of gold is almost completely dependent on the future value of the dollar, because gold is priced in dollars.
The future price of gold is dependent on the future value of the dollar
So what do I mean by this? It’s actually fairly simple. One of the major fundamental things that are driving the price of gold higher is inflation.
I hope, and think, that it has been impossible for you to not realize how fast prices for goods and services are going up nowadays. Take the grocery store for example. How much more groceries did a $100 bill get you say 10 years ago compared to now?
How much more gas could you buy for $20 ten years ago compared to now? Everything that we keep buying is going up in price every second of every day. The reason why? Because our government and banks keep printing much more money so that the value of the dollar is going down.
I like the analogy of a hockey card (because I love hockey), but you can think of any other sports card. As you know there are certain cards that are valued more then others by us. As an example if you traded cards with somebody maybe you wanted 3 of his cards for one of yours.
So what is it that makes a card more valuable than others?
It’s how many of those cards are in circulation. If everyone have a specific card and there is lots of them floating around, that card wont be worth as much right? The most valuable card is one that there is only one copy of in the entire world.
If someone started to print more and more of this valuable card (so there are more in circulation) the value of the card would drop, right? Because now everyone have this card and there is nothing rare and exciting about it anymore.
The exact same thing goes for our money. Think of the dollar as this valuable hockey card. It is valuable because there is not that many of them. When then our central banks keep printing more and more of these dollars the value of one goes down just like the hockey card.
As another example lets look at house prices. The price of an average home has went up in price a lot in the past 20 years. Why is that? I mean it is still the same house as it was 20 years ago? If anything it should have gone down right? Because for example the door is now 20 years old and not brand new.
What is happening is that the value of the dollar is getting systematically destroyed by our central banks, that is why the price of the house goes up. The value of the house is still the same, I mean it’s the same house. But because there is more paper dollars out there chasing the same house the price of it gets artificially pumped up.
Take a look at the chart below. It’s the value of the dollar and as you can see it has lost around 95% of it’s value since 1913 when the federal reserve was created. Think of it like this: you get 95% less stuff (food, gas, houses etc) for a dollar today then you did in 1913.
So what does this have to do with the gold price forecast you might think? Well gold is exactly the same in a way as a house or the food. The major driver of the price is inflation. The more money our central banks print, the higher the price (in dollars) an ounce of gold will be.
That is why when people ask me how much the gold price will be in say 15 years I just ask them. How much more money will our central banks print?
Because gold can be worth $10,000,000 in 15 years. But then maybe a cup of coffee costs $50,000. The reason why is because the central banks have printed so much money that we have gotten an inflation that is out of control that just keep pushing the price of everything through the roof, especially gold.
So how much money will the central banks print?
That is a tougher question. But right now it looks like the only thing that they can do to keep this economic system going is to print more and more money every second of every day. To go deeper and deeper into debt to be able to pay their bills.
I mean if printing money actually worked why doesn’t the central bank print $1,000,000 for each citizen so they can go out and spend it? Imagine if you got $1,000,000 today that you could spend. That would be nice wouldn’t it? Well of course it doesn’t work like that and printing money to pay your debt has never worked throughout history and it won’t work this time either.
Have a look at the chart below. This is the US monetary base. So it’s the amount of all the dollars printed since 1985. As you can see they are printing more and more money (paper) every day.
Look at the craziness after the 2008 financial crisis. This is when the US central bank did the bank bailouts and all the Quantitative Easing. Do you think this can go on for ever? To just print more money to keep the system going?
And even if you do, I hope that with this article you have realized that the more money they print the higher the price of gold will go.
I hope that this article showed you that the future price of gold completely depends on how much money our central banks will print. The more money they print, the higher the price of gold will be.
That is why I don’t like to put a dollar value on gold for the future because it doesn’t make sense. An ounce of gold in Weimar Republic (old Germany) went from a 100 marks (Germany’s equivalence of a dollar) in 1922 to 1,000,000,000,000 marks in 1924 during their hyperinflation.
At 1922 a loaf of bread was 163 marks and by the end of the hyperinflation in 1924 it was 200,000,000,000 marks.
So the price is pointless to know. What you want to know is the value of gold. How much rice does one ounce of gold gets you? How many ounces of gold to buy a house? a car? Whats relevant is the ratio between gold and other products. Because as I said, gold can be $1,000,000 for one ounce but a cup of coffee then is $50,000. That way gold haven’t risen in value, just in price.
If you think that the US will keep printing more and more money to go deeper and deeper into debt then it should be a very logical conclusion that the price of gold will go up. How much will it go up? Well, how much money will they print?