Problem With Predictions For $20K Gold

PREDICTIONS FOR $20K GOLD

Gold at $20,000 is the latest price prediction from a high profile analyst. The article I read  makes a strong case for how the gold price could go to $20,000 oz. if the US dollar loses ninety percent of its current value.

That part of the explanation is correct. And it is what I have been saying in my articles over and over again; namely, a higher gold price reflects the loss in purchasing power of the US dollar that has already occurred - nothing more, nothing else.

Since the origin (1913) of the Federal Reserve, the US dollar has lost ninety-nine percent of its purchasing power. It takes one hundred dollars today to buy a similar amount of goods and services compared to what one dollar would buy a century ago.

When the gold price peaked in 2020 at $2067 oz., it reflected fully a ninety-nine percent loss in US dollar purchasing power at that time.

The one-hundred fold increase in gold's price matches the one-hundred fold increase in prices for consumer goods and services.

A ninety percent loss in the value of the US dollar from its current value would bring about a corresponding ten-fold increase in the price of gold from this point. In round numbers, that means gold at $2000 today would be priced at $20,000. No argument there.

The problem is that the increase in the gold price is repeatedly referred to as an increase in its value. That is not correct.

GOLD PRICE VS VALUE

The value of gold is constant. It is a store of value and real money. Gold's primary value is in its use as money and it has a secondary use in jewelry and adornment. (see Gold And Silver - Fundamentals Be Damned)

Its price in dollars increases over time to reflect the actual loss in purchasing power of the US dollar. This is shown on the chart below...

Gold Prices - 100 Year Historical Chart

It is not too difficult to imagine what this chart would look like with a near vertical line straight up to $20,000. It would likely be viewed as the moon shot that has long been expected and continually eludes gold investors.

Before getting carried away, though, let's look at another chart...

Gold Prices (inflation-adjusted) - 100 Year Historical Chart

On the chart immediately above, it is clear that gold's value has not increased - just its price. The price increase accounts for the effects of inflation.

What you could buy with one ounce of gold at $660 in 1980 is the same as what you could buy with one ounce of gold in 2011 at $1895 and in 2020 at $2060.

The same analysis holds true for gold at $20,000 oz...

ONE OUNCE OF GOLD AT $20,000 WILL HAVE THE SAME VALUE (PURCHASING POWER) AS ONE OUNCE OF GOLD TODAY AT $1900. 

Remember, the $20,000 price for gold is contingent upon the corresponding decline in US dollar purchasing power. A projected ninety percent drop in the dollar's value means that prices for ordinary goods and services would rise ten-fold.

Imagine you were paying $40 per gallon for gasoline, or $25 for a loaf of bread. A gallon of milk would cost $30 or more.

A one-bedroom apartment today at $2000 per month would cost $20,000 per month after a  ninety percent drop in the US dollar.

WILL THE US DOLLAR COLLAPSE?

Losing ninety percent of its value is tantamount to a collapse and potential repudiation of the US dollar. By focusing on the price increase expected from gold under those conditions, some may have a tendency to ignore or dismiss other factors.

IF the US dollar loses ninety percent of its current value, you will need gold to be at $20,000 just to break even.

If there is a complete collapse in the dollar, including outright rejection and repudiation, it will not matter what the price of gold is - if there is a quoted price.

For example, if dollars become totally worthless, what difference does it make what the price of gold will be?

All that will matter is how much gold you own - any price appreciation becomes irrelevant (see Gold Price During Hyperinflation). 

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN'T, AND WHO'S RESPONSIBLE FOR IT and ALL HAIL THE FED!

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