If you’re a gold investor, I’ve got some good news for you.
Gold is gearing up for another big bull run.
This is something that we’ve been predicting for a while, and it’s rewarding to see it finally coming to fruition.
Indeed, after peaking at $1,365 per ounce in 2016, gold hit the skids and slumped back down, ending the year at around $1,100.
Some investors lost faith, but we never did.
We predicted that gold would bounce back over $1,300 per ounce in our 2017 gold forecast. In fact, we said it could even go as high as $1,400 or $1,500 per ounce.
Our predictions have been proven correct because gold is now trading at its highest price in a year. It’s even outperformed stocks:
So now, as 2017 comes to a close, what should investors expect for 2018 gold prices?
More gains, to put it simply.
Gold will be continuing its upward climb, and there are four reasons why...
Gold Shines Through Chaos
As you undoubtedly know, gold performs best in times of uncertainty.
Well, the overall environment has never been less certain.
Over the past year, we've seen massive environmental disasters with three major hurricanes that obliterated wide swaths of Texas, the American Southeast, and the Caribbean. And as much as we’d like to believe that this was some fluke, it wasn't.
These superstorms have direct ties to our changing climate. Both the ocean and the air are getting hotter, and this is leading to storms that are more powerful, wildfires that are more blistering, and higher levels of flooding.
And we'll be seeing more of them in the future.
In addition to Mother Nature, the world is fracturing both socially and politically.
Dissatisfaction and anger have translated into major political shifts, like the Brexit and the 2016 U.S. presidential election. We’re now seeing more protests and more riots — not just in the U.S. but also worldwide, as well.
Bad actors like North Korea and Russia have gotten more brazen. China has gotten more aggressive. The U.S. is no longer seen as the world’s most powerful and influential nation. And the odds of a large-scale war are at their highest levels in decades.
No doubt, the world is becoming increasingly chaotic. Long-held rules and norms are being questioned, tested, and violated on a daily basis. And it will only continue getting worse.
And as the world’s ultimate safe haven, gold will continue benefiting from this shift.
U.S. Domestic Policy
Gold will always benefit from global turbulence, but it’s most affected by U.S. policy.
After all, gold’s price is largely influenced by the value of the U.S. dollar.
And the U.S. dollar is losing its value.
Here’s how the U.S. dollar has faired in 2017:
It’s down about 10%.
And there are a few reasons for this decline.
One is that foreign currencies are getting more competitive. This is especially true of the euro, which is the U.S. dollar’s chief rival. After taking interest rates negative in some cases, Europe is finally trying to rein in its monetary stimulus.
The euro is strengthening, which diminishes the U.S. dollar and boosts gold.
Also diminishing the U.S. dollar is a dysfunctional U.S. government.
A unified Republican government failed to achieve any significant policy victories in the first year of Donald Trump's presidency. Instead, it was consumed by infighting and undermined by a president who spends more time tweeting than he does leading.
After promising for seven years to repeal Obamacare, the Republican effort flamed out in multiple high-profile failures. This undermined confidence both on Wall Street and Main Street.
Congress also failed to pass a budget and instead continued fighting over spending and the debt limit. This is hurting the U.S. dollar more than anything else Congress has done (or failed to do). And it won't be getting any better in an election year.
Indeed, more gridlock and upheaval is on the docket for 2018 — not less.
Fraudulent Fed Theory
When we talk about U.S. policy in regard to gold, we must also discuss the Federal Reserve.
There’s no question that gold has been largely constrained by Fed policy. But the notion that rising rates will crush gold is completely unfounded.
For one thing, the Fed raised interest rates three times in the past 12 months, and yet, the U.S. dollar is down and gold is up over that period of time. This alone should dispel any notion that monetary tightening is a death knell for gold.
But what’s more is, if you look at history, this trend isn’t uncommon.
Historically speaking, the U.S. dollar actually underperforms in most periods of monetary tightening.
Look at the last two monetary tightening periods — in February 1994 and in June 2004 — and you’ll see nearly identical patterns.
In both cases, the U.S. dollar strengthened before the first rate hike but then weakened by around 8% over the next six months. The U.S. dollar index then remained consistently below its level on the day of the first rate hike for the next two to three years.
You’ll also note that, in those instances, gold prices went higher.
Gold more than doubled between 2004 to 2008, shooting from $400 per ounce to nearly $1,000 per ounce.
What all this data and historical precedent says, basically, is that the market tends to overestimate the effect monetary tightening has on the U.S. dollar and, thus, on gold.
And that’s what we’re seeing now.
Remember, the Fed issued its first rate increase back in December 2015 — a negligible lift from 0–0.25% to 0.25%–0.5%. It’s raised rates three times since then to its current level of 1%–1.25%.
So, at this pace, interest rates won’t hit be hitting 4% until 2023.
Gold is outperforming because the market has underestimated it. It was oversold based on Fed policy and is now correcting.
Here’s the simple reality: There’s only so much gold in the world, and we’ve already mined most of it.
That’s all there is to it.
The world’s most productive mines have been fully depleted.
South African gold production, for example, has fallen from over 1,000 tons in the early 1970s to around 160 tons today. There isn't currently a single South African gold mine among the world’s top 20 gold producers when, in years past, they dominated the sphere.
Furthermore, the pipeline of new gold mines has been dwindling for more than a decade. Just three primary gold deposits have been discovered since 2014 while 37 were discovered in 1987 alone:
And it will only continue getting worse from here on out.
This is the phenomenon known as “peak gold.”
Last year, 2016, was the first year since 2008 that mine production fell. And 2017 output is on track to be only marginally higher than 2016 or flat. From then on, there will be a marginal decline in gold production until there’s simply nothing left to produce.
Mine supply will be falling by roughly a third over the next decade.
All the aforementioned factors — political instability and global monetary policy — will affect gold in the short term. But peak gold is the key catalyst that will be driving gold prices higher and higher over the next five, 10, 20 years, and beyond.
And this is why we’re so bullish on the metal, even when it falls out of favor.
We're firmly expecting gold to carry its 2017 momentum into 2018, topping $1,400 per ounce and maybe even making a push toward $1,500. How far gold goes in the short term will depend on the amount of political instability we see. But again, gold’s long-term future is bright.
Call it like you see it,
@nickchodge on Twitter
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street's Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.
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