Gold Is Headed to $8,000…if History Repeats

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(Nicoya Research) The gold price bottomed in late 2015 around $1,050 per ounce. It has since advanced to a high of $1,555 in early September, followed by a pullback to the current price of $1,470. Gold is in a well-defined uptrend channel with higher lows and recently higher highs. The breakout above $1,360 this summer was significant and we have seen follow-through buying. The $420 move in the price of gold from the bottom in late 2015 represents a gain of 40% in just under four years.

While this is a respectable gain, it only scratches the surface of the potential move ahead. To understand why let’s take a look at the last two major bull markets in gold.

From 1971 to 1980, the gold price rocketed from a low of $35 to briefly peak at a high of around $850 ($678 high on the weekly chart) for a gain of just over 2,000%. It was closer to 850% in inflation-adjusted terms.

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The price would still need to go up roughly 15x (1,400%) to match the 1970’s bull market, which would take the price to over $22,000! Or it would need to go up another 5.5x (450%) to $8,000 to match the magnitude of gains from the 2001-2011 bull market.

Put simply, the gold price has an explosive move ahead if the current bull cycle is to come anywhere close to the magnitude of the past two bull cycles.

If anything, the underlying conditions that caused the gold price to spike 20x in the 1970’s could be viewed as even worse today. We have a massive derivatives issue and corporate debt problem that many view as ticking time bombs. This grand experiment with fractional reserve fiat paper money being used as a world reserve currency is likely coming to an end.

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