Jim Rickards predicts gold price could soar above $27,000 per ounce soon. He emphasizes that this projection isn’t for shock value but is grounded in rigorous analysis. Rickards, an economist and best-selling author, shared his latest gold price prediction in the Daily Reckoning. Previously, he estimated that gold could reach $15,000 by 2026. Now, he has updated his forecast to over $27,000, stating, “It’s not a guess; it’s the result of rigorous analysis.”
Rickards’ analysis is based on the potential return to a gold standard if confidence in fiat currencies collapses. Factors that could trigger this include excessive money creation, competition from Bitcoin, extreme dollar debt levels, or new financial crises. He suggests that in such scenarios, central banks might turn to gold to stabilize the global economy.
Gold Price Calculation
Jim Rickards predicts gold price may exceed $27,000 due to potential shifts in monetary policy. Rickards explains that the U.S. M1 money supply stands at $17.9 trillion, which includes cash, bank reserves, and demand deposits. Using a 40% gold backing, a historical standard from 1913 to 1946, $7.2 trillion in gold would be needed.
He calculates that applying this $7.2 trillion valuation to the U.S. Treasury’s 261.5 million troy ounces of gold results in a price of $27,533 per ounce. This represents the non-deflationary equilibrium price of gold in a potential new gold standard.
Historical Context and Assumptions
Rickards notes that money supplies have been increasing, especially in the U.S. He acknowledges that there is room for debate about whether a 40% backing ratio is appropriate. However, he argues that his assumptions are moderate and based on historical and economic principles.
Rickards’ prediction is founded on the idea of a return to the gold standard, a monetary system where a country’s currency or paper money has a value directly linked to gold. He believes this could happen if confidence in fiat currencies collapses due to factors like excessive money creation, competition from cryptocurrencies, high levels of debt, or new financial crises.
However, the likelihood of a return to the gold standard is highly debatable. Most modern economies have moved away from this system because it limits the flexibility of monetary policy. Central banks prefer fiat money, which they can control and adjust according to economic needs. A return to the gold standard would significantly constrain their ability to manage economic stability and respond to crises.
Rickards calculates the potential gold price by considering the U.S. M1 money supply, which includes cash, bank reserves, and demand deposits, currently valued at $17.9 trillion. He applies a historical 40% gold backing ratio, suggesting that $7.2 trillion in gold would be required. Dividing this by the U.S. Treasury’s gold reserves of 261.5 million troy ounces, he arrives at a gold price of $27,533 per ounce.
Feasibility and Economic Impact
Jim Rickards predicts gold price could rise if confidence in fiat currencies collapses. While Rickards’ calculations are mathematically sound, the feasibility of these assumptions is questionable. The 40% backing ratio is based on historical precedents that may not be relevant in today’s complex global economy. Modern economies are vastly larger and more intricate than they were in the early 20th century. Applying such a ratio today might oversimplify the complexities involved in monetary policy and economic stability.
Furthermore, the transition to a gold-backed currency would be fraught with challenges. It could lead to significant market disruptions and instability. The price of gold is also influenced by various factors such as mining output, geopolitical stability, and investor demand, which can be unpredictable. The potential economic impact of such a high gold price is another concern. A gold price of $27,000 would likely indicate severe economic distress or hyperinflation, which are negative for the global economy.
