Gold Price – US$700 Or US$7000?

Does either of the above preclude the other?  In other words, if we expect gold to reach $7000.00 per ounce, and we are correct, does that mean that we can’t reasonably expect gold to go as low as $700.00 per ounce? Conversely, if we are predicting or expecting gold to decline from its current level and even breach $1000.00 per ounce on the downside, can $7000.00 per ounce, or anything even remotely close to that number, be a reasonable possibility? 

I do not think either one precludes the other.  In fact, I think it is entirely possible that we can see both figures.  And not necessarily spread over an inordinately long period of time,
either.

Here is a possible scenario that would allow that to happen.

As the U.S dollar strengthens, the U.S. dollar price of gold declines.  This is clearly evident in the price action of gold since its high point of approximately $1900.00 per ounce in 2011. There is no way to know for certain how long relative dollar strength will last. And it is reasonable that if ongoing dollar strength takes gold below $1000, it might come to rest somewhere between $860 – 890.00 per ounce.  In January 1980, gold peaked at $850.00.  Revisiting that number is plausible, and well within the realm of realistic speculation.  And, yes, there are technical indicators that point to a gold price of as low as $700.00 per ounce.

But what type of economic conditions might accompany the reality of that price projection?

I think the consensus is that an ongoing stronger U.S. dollar would be accompanied by a stronger economy.  That makes sense.  But what if it doesn’t happen that way?  What if the economy continues to struggle even more?  Remember, we have been subjected to huge creations of money and credit over the past ten years.  And that is on top of similar policies and actions by the Federal Reserve over the past one hundred years. Is our economy strong enough to weather the effects of attempted normalization?  Or, is it too late?

I believe that is exactly the question that is plaguing the Federal Reserve.  And it is the reason they have struggled with firm decisions on altering their accommodative expansion of money and credit.  This is most obvious in their lack of decisiveness regarding interest rates.

Regardless of that, whatever the Federal Reserve has done – or hasn’t done – since 2011 (when gold peaked at $1900.00) has been interpreted positively, generally; at least as far as the U.S. dollar is concerned.

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