How Realistic Is $5,000 Gold?

Taking into account 11 key measurements based on historical movements and price ratios, gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher. Let me explain.

In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1,250 on gold and $20 on silver.

$1,500 Gold and $30 Silver By 2011

On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1,500 gold and $30 silver by 2011.

Gold and Silver Have MUCH Higher to Run

Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.

Current SGS inflation adjusted high 2015 with 6% inflation

Current SGS inflation adjusted high

1980 Dow to gold ratio of 1.5 to 1

1930's Dow to gold ratio of 2 to 1

Nikkei 5yr 1985-1990, 3.63 factor

Adjusted by growth in money supply/gold supply

Current CPI adjusted high 2015 with 6% inflation

Current SGS inflation adjusted high 2015 with 6% inflation

Current SGS inflation adjusted high

1980 Dow to silver ratio of 25 to 1

80% dollar devaluation and return to 1/16 gold

Adjusted by growth in money supply/gold supply

Current CPI adjusted high 2015 with 6% inflation

Nikkei 5yr 1985-1990, 3.63 factor

The above analyses are in keeping with the projections of 102 other prognosticators, the majority of whom see gold reaching a parabolic price peak of at least $5,000 (see here for the 102 individuals and their projections and here for comments on Jim Sinclair’s $1 million dollar bet that gold will reach $1,650 by January, 2011), and silver going as high as $712 (see here for the rationale for such an extremely high price based on $10,000 gold and here for the reasoning behind James Turk’s contention that silver is going to $400 by 2015 and gold to $8,000).

While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the U.S. but are global. If the US dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970's bull market in gold and silver was largely driven by U.S. buyers, a panic to buy precious metals within the next 5 years will be driven globally.

As I said in the opening paragraph, “gold is likely to exceed $5,000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher.”

Given what you have read above would you not agree that you should buy some (or more) gold and/or silver at the first sign of any temporary weakness in price? I certainly think so!

Chris Mack is President of Trade Placer (tradeplacer.com) which brings the “Power of Wallstreet on Mainstreet” to its readers and a frequent contributor to both  www.FinancialArticleSummariesToday.com “A site/sight for sore eyes and inquisitive minds”  and www.munKNEE.com “It’s all about MONEY”. He can be contacted at info@tradeplacer.com.

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