Will gold hit 5000 dollars an ounce?

Gold prices.

This is not an expert view on gold price, just one man's opinion, I do not own a crystal ball like some pundits claim to have!

If you are a gold watcher, you would have seen very little real entertainment in the last 30 years, and gold has become a bit boring really.

All that may be about to change with gold hitting the spotlight a little lately with prices approaching viability levels for some miners with higher than average extraction costs.

It is logical that gold has climbed a bit lately, Questions of financial liquidity helped, as did the many wars that frighten currency so much.

What is more interesting is why it is not much more expensive than it is currently.

The US dollar is a long way from out of the woods, yet apart from a government or two buying a few tonnes, demand for the lovely yellow has remained pretty slow.

If you consider the rise in price of gold in the seventies and where it got to, (I will leave you to do the math for your currency's inflation,) here in Australia that amounts to around 3 and a half grand an ounce in today's dough.

If this next round of world financing does not go well, or if the finance has to be obtained under trade duress, then I believe we could see a stronger lift in the price of gold to levels that although seem high, are in keeping with a heavily indebted world.

The enormity of the extended costs of 2 wars, and the coming cost in August to re-settle the American troops returning from Afghanistan along with 10% unemployment and massive existing debt it is not hard to see the possibility of the dollar taking a hiding in the medium term.

Some things are basic. The value of the buck is one of them. How can America attract capital with so many recovering economies already increasing their interest rates as much as 1 percent in a few months. Base rate in places like Australia are already up to 4 percent with retail money selling at 6 percent or more.

China?

China will do what it can to keep America afloat, it needs the market, especially now.

What it can do will be limited by it's own grossly overstated growth being further stifled, and the need to pour trillions of Yuan into infrastructure to employ enough of it's people to avoid an internal social meltdown.

Again primary product producers will still stay on the gravy train, but America is not a big supplier of iron ore bauxite, natural gas, so no wins there to feed this monolithic economy either.

This would leave China with only the interest in America as a market, and currently Americans are not able to keep consuming at the previous rate and that will count with China too.

India?

India may well be able to assist global refinance, but where will it's interest be focused?

I say watch gold. It could hit 5000 an ounce!

Comments 27 comments

Hello, hello, profile image

Hello, hello, 6 years ago from London, UK

Very very interesting and thank you.


mel22 profile image

mel22 6 years ago from ,

I beleive I'm responding to this well past the time you published , but I originally thought gold would hit the 1400 mark. but as of now with the Euro tanking and pushing up the dollar "artificially" I am seeing the price of gold dropping in the short term. however with a new round of 3.6 billion budget proposal and 1.6 being added on the deficit side to the national debt, I imagine alot of gold investors are poised to pounce on these new short term lows with the expectation of a completely devalued currency leading to another new gold high this summer or fall! I think the expectation of 5,000 is probable more on the timelines of 2015 or 2020 and the near future highs to be at 1400!


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Thank you for the well rounded comment. I can see the chance of an irrational run based on fear before then but theoretically you may well be correct. Gold is usually well behaved, but I could imagine a strong fear driven hike as well in the current debt crisis.


nicomp profile image

nicomp 6 years ago from Ohio, USA

Here's my gold question; in the US we are inundated with radio and TV ads telling us to buy gold because the dollar is about to suffer massive inflation. The implication is that gold will have value when the dollar becomes toilet paper. What I don't understand is who will be accepting gold to buy stuff? Will I be able to go to Wal Mart and buy bread with my gold? Under this scenario I will need to actually possess the gold in order to trade it for survival items. If I let someone else hold it for me, then I have to sell it for dollars in order to become liquid so I can still pay the mortgage.

Gold had better increase in value faster than the dollar devalues; if the dollar loses 10% of its purchasing power, then gold needs to go up 11% to be more valuable. Unless we plan to sell the gold for Euros. And I can't spend Euros at the local Wal Mart either.


agvulpes profile image

agvulpes 6 years ago from Australia

Yes I am thankful that I am living in Australia as all indications are the Americas and England will be hit with a new wave. Makes you wonder who will own these countries in the not so distant future. America just can't afford to thumb their nose at China. They are very unforgiving!


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Good comment nicomp. I agree, you will still have to do your daily spending with the good ole green-back.

The problem is, you need investment money to buy gold, we still need some bucks to live on, and yes, when you spend the value will still have this relationship with comparative value exchange.

Well said!


Candie V profile image

Candie V 6 years ago from Whereever there's wolves!! And Bikers!! Cummon Flash, We need an adventure!

You've hit a hot topic here! Ah.. the price of gold! Every other financial show is centering on the price of gold. I too, am no expert, but let's face it, we have been moving in this direction for decades, and it's moving faster all the time. I can see in some not to distant future, we may be facing a global currency system (which I'm NOT in favor of) but the inequities between markets may push us towards this - just as the EU has done. Well, I'm making chocolate chip cookies, so I'd better get back to it! (That I AM an expert on!!)


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Thanks for the great comment Candie! I reckon the gold "scaredy pants factor" is the great unknown here!

People are getting plenty of mixed signals at the moment.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

agvulpes, that would seem about right. Germany is in a deep hole as well.


bearclawmedia profile image

bearclawmedia 6 years ago from Mining Planet Earth

Thanks mate, good news to come home to. Just returned from Thailand. Always buy gold when there, as the quality is assured at government gold shops. I am with you on this caper as well!


Springboard profile image

Springboard 6 years ago from Wisconsin

It was when a company cropped up during the surge in oil prices offering gas to be purchased today and used whenever after (when prices were above $4 a gallon) I knew it was over. The hype had gotten to be too much. People had gone crazy and no one was thinking rationally. The fundamentals for the rising cost of oil were not there, and I thought, it was therefore getting really unstable and things were about to implode.

And they did very very soon after.

I see gold exactly the same way. Actually with respect to gold it's a bit nuttier. People are going nuts trying to hock their crowns for cripes sake. You can practically sell gold anywhere nowadays—it's getting ridiculous and that's the first sign it's coming to a head.

People get into a panic. Right now it's fueled by the falling dollar value and high debt and two wars. But here's the other element that a lot of people don't quite see that I've been arguing.

Our middle class has been destroyed by globalization. That's point one. Yes, globalization is a good thing. A healthy thing. Only, the way we've conducted it has been unhealthy, because the only economies which have truly benefited from globalization thus far have been OUTSIDE the US. We've lost our industrial base which were some of the highest paying, best benefited jobs in the country. We've replaced them with office workers and service workers—these jobs require a college degree but actually pay less than most factory workers in this country make. The average factory worker in America makes around $54,000 per year. Many factory workers make far more than that. I certainly did.

The fact that the dollar is falling in value has some GOOD to it in that it makes it cheaper, once more, for goods to be produced right here in the good ole U.S. of A. That means jobs. That means good jobs if they are in manufacturing. That means better accessibility and opportunity and choice for career for people—especially in the inner cities. If more people are working, and not JUST working, but working GOOD, SOLID, BENEFITED PAYING JOBS like factory jobs, the middle class can be restored. That bodes well for the US economy, and the value of the dollar ultimately...

This is getting long, but that's the gist of it anyway. Gold is a safehaven right now, but it won't be for long, and I wouldn't bet one penny on it from here on out.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Hi springboard. Well your opinion is right here to be seen, and it will be interesting to see what others make of it.

For myself I feel there will be a new panic period that will see it rocket as America tries to pull back from Iraq and Afghanistan, with the pressure on the domestic market that may bring, and the rest of the bailout coming to light as it is now in Australia. We do not yet have all the failures accounted for and how much more money is involved is yet to surface. Smaller banks are recovering in places like Australia with the Commonwealth Bank for one stacking on the profit yet we still have many banks here and worldwide who have been less than honest about their exposure to sub-prime and are still tucking their debt out of sight.


Springboard profile image

Springboard 6 years ago from Wisconsin

Oh, there's no doubt we're not out of the woods with regard to the economies worldwide. There's still a rippling effect going on that we'll feel for some time, though the US economy will recover before the ripple is done. And that WILL indeed, I think, drive up the price of gold a bit higher than where it is now. Again, comparing the oil craziness, I could have conceded to $200 a barrel oil, even though it never got there. But people were talking about $500 a barrel, a figure I thought for SURE we wouldn't see. That's that crazy element. Could we see gold at $1400? Yes. $1500? Yes. Is it possible it could see close to $2000? Yes. $3000-$5000 and beyond is where the crazy is. Mel22's number is a fair one at $1400.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

I would agree it seems a lot, but it is not much higher than it went to in 1979 if you compare real dollars, and circumstances...... ? A well informed comment, thank you!


Springboard profile image

Springboard 6 years ago from Wisconsin

I agree with you. Oil, cost adjusted for inflation was higher in the 70s than it was at the height of its price spike just a short while ago. Still, demand is such a superior driver in the overall scheme. The higher the price goes, the less demand there is, and when it begins to get into these crazy high levels, demand begins to fall off so dramatically that the price then hits a resistence. Besides the fact that short positions are rising even as the price for gold is still rising.

Oil was exactly the same way. The price for a barrel of oil rose until the point at which demand for oil dropped significantly—even being such a massive and integral part of the American economy. At that point demand dropped so sharply the price snapped back.

Gold is a little different fundamentally, but economics are still fairly standard.

I could be wrong, you know. That's also a strong possibility. :)


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Yes, at 5k an ounce it would have to be hiked by a lot of scare-scaremongering or real crisis. Especially this time around with much faster market responses likely due to computer buying available to all.

As you so clearly pointed out anyone can buy gold now so I agree, logic would indicate a slide from any high level to happen quickly as demand drops back from the real market.

What makes me think it will still sky-rocket? Not the fundamental conditions of the market, which may support 14 or 15 hundred as you say, but the yellow metal madness driven by buyers who decide to bunker at any price as currencies become more volatile as more of the current mess in Europe sees daylight, and the currently strong economies like Australia start to unravel again when they discover that China's real growth is less than half what we have based our future assumptions on. I see a very rough ride for Australia's economy coming up as we discover more and more problems with inflation which, because of interest rate rises ( 4 so far) bite the mortgage market again, with another collapse in housing just around the corner for us and many fast tracked smaller economies in Oceania that have been primed without enough consideration for the inflation caused by the pumping in of debt capital to sustain the economies.

It is a very interesting time. In America you have a lot of push to buy gold, here we have very little marketing yet. I do not think the marketing will do much, I suspect circumstances that come to light about the current world financial market is gonna scare the hell out of mum and dad investors, who will start storing it in the corner of their fallout shelters.


Springboard profile image

Springboard 6 years ago from Wisconsin

Very interesting debate, and I certainly see your points. Gold is a bit of a bubble. It's part of the business cycle nowadays. Bubbles. It'll burst eventually like all bubbles do. It's the knowing when to get out which is the trick, and unfortunately even the most saavy of investors doesn't know how to do that.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Ain't that the truth! Crystal ball required.


DanPowers profile image

DanPowers 6 years ago from Tokyo

All recessions end in wars. This one will end in a doozy. Keep buying the gold stuff.


Springboard profile image

Springboard 6 years ago from Wisconsin

Dan, just a reminder that going INTO war ended the Great Depression. Hmm. Maybe we should invade Iran.


tdarby profile image

tdarby 6 years ago

If you measure it in US $'s I think it will too. It doesn't seem to me that the movement is so much based on the "growth" of gold but rather it is going up in price because of all the deleveraging the govt's keep doing. Deleveraging will make it get to $5000. Gold becomes a repository of value, a safe haven if you will, when inflation hits.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

I think the same.

Australia is back up to 4% base rate as of yesterday the 3rd rise of .25 We are trying to keep a lid on inflation here, but I can't see America being able to do so without stalling. Thus gold could see $5000. Thanks for the comment Ttdarby.


Springboard profile image

Springboard 6 years ago from Wisconsin

tdarby—the idea of inflation is a whole different circumstance, and I think it's a slippery slope for the US with all the of the current deficit issues. Inflation as a result of higher taxes across the board, but specifically related to business, would surely devalue the dollar and cause any 'safehaven' commodity like gold to rise in value as a result. But a rise in economic growth, if it can be acheived, would balance this out. And speaking conversely, I think that the current state of the dollar actually puts some deflationary pressure on the dollar, even if taxes go up, because the demand side on goods and services will actually force businesses to lower prices in order to get those goods and services sold.

There are just too many sectors actually experiencing this very fact right now as we speak. Housing, for example. Or take commercial real estate. They are suffering deflationary pressures big time. Even the commodities surrounding these industries, like lumber, are facing deep deflationary pressures. It's cheaper to buy lumber, for example, than ever before. The cost to ship goods is another example. Forget oil prices, all you want to do now is load up your trucks. The list grows. If you want to load your trailers with limited product going to limited customers, you've got to give those suppliers a reason to use your trailer as opposed to the other guy's. And additionally, if you are a retailer, you want to give customer's a reason to buy the goods through you as opposed to the other guy.

This deflationary pressure will remain true UNTIL the economy in the US starts to really reveal it's in a real recovery.

And deflationary pressure will have a net negative effect on the value of the dollar, to the extent to which inflation can be an issue, and ultimately the value of gold.

The dollar, right now, has a lot of uncertainty attached to it. And we all know what effect uncertainty has on any aspect of the markets.


earnestshub profile image

earnestshub 6 years ago from Melbourne Australia Author

Well, we copped another interest rise here and retail money is selling at6-7%. The local experts are now sounding like me, with financial pundits saying 5k is possible if we push the economy too hard.

Greece, Italy, Germany are all looking like 20 years in the hole economies and although no real panic yet, it does look like the euro is gonna get the hell kicked out of it.


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