By Sean Kelly
Analyst Says Gold Headed to $7,000 by 2025!
“I know of no way to judge the future but by the past.”
— Patrick Henry
“This year ranks as one of the best on record for investors in the precious metal [gold], with futures prices up almost 24% for 2020 after hitting an all-time high in August.”
So reports the Wall Street Journal on Tuesday morning (9/29). It’s accompanying graphic illustrates gold’s substantial outperformance of both Treasuries and stocks for at least the last 15 years.
The story goes on to note that in real terms, in constant dollars, gold has room to keep rising. “The price would have to climb another 43 percent from its late-August level, crossing $2,800 an ounce, to top its peak from early 1980, after adjusting for rising consumer prices in the four decades since then.”
September 30 is the end of the government’s accounting year, FY2020. It is a good time to get our bearings: what has happened with government debt and Federal Reserve money printing, important dynamics that drive gold higher?
And what is to come?
First of all, the national debt grew by more than $4 trillion dollars over the past 12 months. Stated differently, the national debt increased more than 18 percent in a single year; it is now $26.8 trillion. (We may have more to say about this when the official numbers for the fiscal year are released in a few days.)
Fed money printing is disclosed in “Fed Assets,” the things – government bonds, mortgage securities, even junk bonds – that the Federal Reserve has paid for with money it doesn’t really have, but just conjures up digitally. Fed assets have now risen to. $7.093 trillion. That is up from $3.950 trillion a year ago.
Fed assets have increased 104 percent; the Fed has more than doubled its assets in a year. In other words, the Fed has printed $4.144 trillion in the last 12 months.
We don’t want to bury you in numbers, but the doubling of Fed assets is a big problem going forward, because it represents an explosive growth in the reserves of America’s fractional reserve banking system that, when lent out, can drive price increases to unimaginable heights.
Meanwhile Fed officials are spending time trying to design ways to inject digital money directly into the accounts of the American people. One much-discussed plan would involve assigning every citizen an individual account with the Federal Reserve itself. Another plan would have federal bonds deposited in the people’s accounts, bonds that would be inert until activated by the flip of a switch when Fed officials deem conditions appropriate.
These schemes represent the fulfillment of what Milton Friedman described as “helicopter money,” cash that the Fed could rain down of the people from the skies above.
It falls to us to be the adults in this conversation. No matter the means by which the Fed injects new money – printed or digital – into the economy, it dilutes the value of the money already in existence. But it does not create new wealth. That is because wealth consists of the production of real goods and services. And printing money is not the production of real goods and services.
If you will refer once again to the first chart, you will see that gold’s outperformance of stocks and US bonds became dramatic when money-printing mania took hold in Washington with Quantitative Easing in 2008.
This year the mania asserted itself even more aggressively. But that’s not enough for the Fed, hence its newest plans for Fed bank accounts and Fed bonds.
None of this has escaped that attention of Mike McGlone, a Senior Bloomberg Intelligence Commodity Strategist. In a series of recent tweets he noted that “the increasing certainty of QE and budget deficits firm gold’s foundation more.”
Because of this deficit spending and money printing, McGlone says that gold is on an even more sound footing today that it was in the 2001-11 period.
“Gold Set for $7,000 in 2025 If Trends Stay Friendly Like 2001-11,” McGlone tweeted.
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