• 168 days Will The ECB Continue To Hike Rates?
  • 168 days Forbes: Aramco Remains Largest Company In The Middle East
  • 170 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 570 days Could Crypto Overtake Traditional Investment?
  • 574 days Americans Still Quitting Jobs At Record Pace
  • 576 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 579 days Is The Dollar Too Strong?
  • 580 days Big Tech Disappoints Investors on Earnings Calls
  • 581 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 582 days China Is Quietly Trying To Distance Itself From Russia
  • 583 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 587 days Crypto Investors Won Big In 2021
  • 587 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 588 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 590 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 590 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 594 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 594 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 595 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 597 days Are NFTs About To Take Over Gaming?
What's Behind The Global EV Sales Slowdown?

What's Behind The Global EV Sales Slowdown?

An economic slowdown in many…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

A Price Target for Gold if the Dow Has Reached Its Top

Personally, I think equities are going to head much higher. There are two main reasons for this:

1. With 7.6 trillion USD in bond payments on government bonds due this year, I believe we will increasingly see capital run out of bonds. See the chart below; price suggests the possibility that the top is in on TLT -- the ETF for the 20 year US Treasury bond -- and that it will have trouble breaking beyond 125. So I think capital will increasingly run out of bonds and will need to go somewhere else. That's where the stock market, as well as gold, come in.

TLT Chart
Larger Image

2. The Fed continues to expand the US money supply; we're now sitting at over 10.8 trillion, using MZM as a measurement. The more MZM grows, the more money needs to go somewhere and the more prices are likely to rise for that reason. If the bond market is unable to generate momentum as we discussed, I think this additional influx of capital will increasingly flow to equities -- doubly so for reliable, dividend-issuing equities.

While I'm confident in that view and position myself accordingly, I do concede that a strong case can be made for the opposing view -- that equities are topping. Certainly the market has been weaker of late, and has had trouble breaking past its all-time highs. The chart below of the Dow Jones Industrial Average illustrates.

DJ-30 Chart

Fundamentally, the economy will be stagnant and reliant upon further stimulus from the Fed unless debt levels are dramatically reduced, largely through outright debt cancellation. The more debt is cancelled and the less the Fed forces expansion of the money supply is, the more likely we are at the top of equities and will stay roughly in this range for years. If the top in the Dow is 13,500, the highly cited 2:1 Dow/gold ratio puts gold at $6,750. If we look at the gold bull market of the 70s and observe that it marked at twenty-four-fold price appreciation -- from $35 to $850 -- a 24X move from $250 in 2001 gives us a price target of $6,000.

I think these numbers are useful as conservative targets. Formulas advanced by James Turk and Jim Sinclair as to what the price of gold needs to be to re-monetize gold both put the price in excess of five figures. Even if we have the much more modest target of a Dow/gold ratio of 2:1 with no new top in the Dow or a repeat of the move in the bull market of the '70s, we're still more than 3X away from the current price. This is basically why I think gold is still a tough investment to beat, and as conservative estimates are still more than 2X away, accumulation is well-warranted.


Back to homepage

Leave a comment

Leave a comment