Gold Prices: The Road To $10,000

Anyone who follows my work knows that I've been hesitant to approve the December 3rd $1,045.40 low as the official 8-year cycle bottom. Nevertheless, the price of gold closed the second quarter (Q2) above my long-held benchmark (16-Quarter MA), reassuring me that the 4-year bear market in precious metals is over. Warnings were lifted. Consequently, gold prices have embarked on a journey that could result in $7,500 and even $10,000+ price targets.

An 8-Year Occurrence

These long awaited occasions in gold arrive just once a decade. Some market bottoms offer better returns than others. During the 1980’s and 1990’s, gold was in a secular bear market, but even then, the 8-year lows yielded an average of 50+% gains. With unprecedented debt levels and endless money printing, the financial backdrop is entering a perfect storm for higher gold and silver prices. Consequently, this 8-year cycle has the potential to become a generational type class investment opportunity.

Record Moves

Gold prices enjoyed an unprecedented run from 1976 to 1980, gaining over 800%. At that time, inflation was rampant, commodities were soaring, and there were supply shortages in the oil market. Still, it is clear that monetary policies and massive budget deficits were the real cause of the inflation. Sound familiar?

Our analysis maintains this burgeoning move in gold may well exceed earlier surges (see chart below). The circumstances driving gold in the 1970’s were primarily centered on the US. The issues facing us today are global in nature. To be sure population expansion, physical demand, shortages and trillions of dollars in circulation could push gold prices to unthinkable heights. 

Quarterly Gold Chart

Negative and record low interest rates forced the 8-year cycle in gold to bottom prematurely in 2015, a full year early (it was due in late 2016). The bottom is now confirmed -- and we are on the brink of a multi-year rally, similar to what occurred in 1976 (bottom left of price chart).

The Parabolic State

After gold prices exceed the $2,000 level, they will conclusively enter a parabolic state. In the beginning, prices are expected to rise in an orderly manner, albeit enhanced. However, as prices accelerate into the parabolic price curve, you will see a near vertical rise into a blow-off top. At that time, I expect prices to double in very short order. Example: prices increase from $4,000 to $8,000 in just a month or two.

How Long Will The Rally Last?

I expect this promising rally in precious metals to last into the next decade. To be sure there will be elections, policy decisions, and black swan events along the way. Some of which may speed up, or even slow down the timeline. Nonetheless, the year 2022 seems like an encouraging focal point.

Limit-Up Days

Futures contracts have maximum thresholds to ensure unexpected or excessive volatility does not push contract prices to irrational valuations. Towards the end of the parabolic stage, gold and silver will most assuredly see lock-limit days. For example, silver futures will halt trading (Limit-Up) after prices rise $30 in one trading day.

When To Sell

If you are courageous enough to invest in precious metals, you’ll eventually contemplate selling. Volatility will reach extremes. Prices may arrive just shy of your target level and then suddenly drop 15%. Your heart will sink; you sell assuming you missed the top. Soon after your order is processed, prices reverse, rally past your original target…and then continue higher. Your stomach churns, you mentally calculate the lost profits. You foolishly consider buying at even higher levels just to get back in.

If the above scenario rings true, you’ve done time in the trading wasteland. You’ve experienced the highest of highs…and the lowest of lows. The extremes in precious metals will be unlike anything we’ve ever witnessed. News stories of currencies and economies collapsing will drive fear and speculation. Social media outlets will circulate unfounded rumors; subsequently panic will ensue. Fear will be widespread -- and you'll dread selling even an ounce of gold. What will you do?

Investors spend countless hours researching what to buy. However, many neglect to build an exit strategy. You need to be okay with leaving some money on the table. When specific benchmarks or price levels are met, sell into strength, scaling out as it were. Formulate a plan to sell a predetermined amount at each level - have a backup strategy.  Remember, you don’t have to sell everything. It's alright to keep some reserves.

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