Why $10,000 Gold Will Not Be What You Think

For almost 7 years now, I have been actively engaged in the online community relating to investing opportunities.  In fact, my first public article about a specific asset was when I called for a top in gold back in the summer of 2011, when most were certain we were about to easily eclipse the $2,000 mark.  However, my expectation was that the $1,915 region would likely put a cap to this rally, despite the parabolic rally we were experiencing in gold at the time.  And, as we now know, gold topped at $1,921 about a month after my top call.

Since that time, I have not only written hundreds of public articles, but I probably have read much more than 5 times that amount regarding various financial markets.

The one thing that has always stuck out in my mind is that the market rarely does what the majority expect.  In fact, most still believe that gold is a safe haven from stock market volatility.  While I have attempted to dispel that notion with actual facts from market history, many still hold fast to this fallacy.

During my time writing publicly over the last 7 years, one of the other fallacies that has been brought to my attention is that if gold really rallied to $5,000 or higher, then the world will likely be in terrible shape.  In fact, many have gone so far as saying that one would not likely want to live in a world of $10,000 gold. And, I just saw this reiterated again in the comments section in an article recently written by Doug Eberhardt. 

So, let’s explore this line of reasoning a bit more.

Back when gold was around $300 almost 20 years ago, many people were saying at that time that one would not want to live during a period of time when gold was at $1,000-2,000.   In other words, they made an assumption that a significantly higher price for gold would suggest that the world was in disarray. 

Well, for those of us that have been living for the last 10 years, we have seen gold rally from $300 and almost strike that $2,000 region.  And, with gold now over 4 times the price it was 20 years ago, we can attest to the fact that the world has not come to an end.  Moreover, for those who were truly paying attention, much of gold’s rally from 2002-2011 was accompanied by a rally in the stock market from 2002-2007.

As we now hover around the 1300 region, which is still more than 4 times the $300 level struck in 2002, I don’t hear anyone complaining about how we are now living in a devastating period of time.

At the end of the day, I think many investors have certain notions they have developed about gold and what it represents.  In fact, many hold fast to these views almost religiously.  Yet, since most of these views are based upon outright fallacy, one may want to simply look at gold as another asset class, rather than impute some over-inflated wrong notion relating to the times in which we live. 

If you analyze what gold will do as an asset class well, then you will do well with your investment.  If you view gold from an emotional perspective or a perspective not based in fact, then it will likely hurt your investment returns over the longer term.  Just remember how most of the market viewed gold back in 2011, and were certain that gold would rally over $2,000.  Remember how, at that time, most thought that revisiting the $1,000 region was simply ridiculous? 

While I still maintain the expectation that we are on the cusp of a major multi-decade bull market in the metals market, I don’t necessarily expect the world to end.  Nor do I buy into the common perspectives held by the overall market, as when most in the market believe something will happen, it rarely turns out that way. While I certainly see some very hard times setting up for our equity markets over the next 20 years, I don’t see the stock market revisiting the lows seen in 2009, whereas I do see the metals market significantly higher in the coming decades. 

Just something to think about.