E Are Gold Bulls Naively Optimistic?

Are gold bulls naively optimistic? They are certainly optimistic; at least as regards their expectation for higher gold prices. But is that all that is needed to make them happy?

If gold marches higher from here, does that signify that all is well?  Would the gurus and wanna-be millionaires be proven correct if gold were priced at $10,000.00 per ounce?

We could ask when. But if those who expect big things for gold are correct, then when might not matter.

Let’s say you want to buy a stock – any stock – that is priced at 13. You have done your due diligence and you are convinced that it can go to 100.

Back up the truck, right?

But most stock investors and traders are not looking for such huge unrealistic gains. At the outside, they might see the possibility of the stock doubling in price; eventually.

So, if gold’s price doubles from its current level, will that be enough?

For most of them, probably so. At least, thinking about it in advance stokes the euphoria and seems to provide justification for their optimism. But, if gold doubles from $1300.00 to $2600.00 in the next couple of years, is that enough to prove the case for the bulls?

To a limited extent, possibly. But not likely. Here’s why.

Gold’s price in today’s dollars needs to reach $2000.00 per ounce just to match its inflation-adjusted high in 2011.

What if you already bought that stock (gold) at 18 and now it has dropped to 13 over the past seven and one-half years. You are holding on because you believe the fundamentals are such that you will see that stock go much higher again; and soon. But how long can you hold on?

After the gold price peaked in 1980 at $850.00 per ounce, it began a long decline in price which lasted twenty years. The eventual bottom, at approximately $260.00 per ounce, represented a drop of seventy percent.

Gold did not reach and surpass its former high until eight years later, in January 2008.

It has only been seven and one-half years since gold’s peak price of close to $1900.00 per ounce in August 2011. Can you wait for twenty more years to see gold at $2000.00 per ounce?

Likely not. Even five more years would be incredibly painful to those who are ready to cash in their winning ticket now.

You would also need to endure a drop in gold’s price to about $600.00 per ounce before it reaches the bottom and resumes its long-term advance.  Most investors today couldn’t tolerate gold revisiting its previous low of $1060.00 from just three years ago; let alone sitting patiently through a decline of more serious magnitude.

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Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and  more

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