How High Can The Gold Price Go?

As gold surpassed US$2,000/oz t recently, many raised their 12-mth gold targets to US$2,100-3,000. Some gold bugs are talking about US$5,000-25,000/oz t. Though, these latter predictions usually include a collapse of the monetary system and/or return to some form of gold standard.

If the Global Financial Crisis aftermath is an indication…

(Click on image to enlarge)

• On a monthly basis, S&P peaked in October 2007, then gold was US$797/oz t
• Gold peaked in August 2011 at US$1,826/oz t, a 129% increase
• If 129% were to repeat from the current level, we would pass US$4,400/oz t

If the gold price only compensates for the increase in M2 money

(Click on image to enlarge)

• Gold peaked in August 2011 at US$1,826/oz t
• Since then the US M2 money stock has increased by 94%
• Assuming a 94% increase from the August 2011 peak, we would go north of US$3,500/oz t

So, how high can the gold price go?

It appears that gold passing US$3,000/oz t is fully possible. Previous all-time highs have been set when investors lost trust in the system. For gold to gain another 50%+ there needs to be a catalyst that makes investors believe it’s the end of the financial system or expect very high inflation.

Please note, this is not a target price nor a recommendation, but merely an illustration.