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Daily Wealth: $3,000 Gold Could Be Just the Beginning

November 16, 2020
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Article By Steve Sjuggerud in Daily Wealth

The 1970s went down in history as one of the most important decades for our financial system. That was the decade our country's monetary system changed forever.

Until the 1970s, gold was what backed the value of our currency. If you wanted to convert your dollars to physical metal, you could do it.

President Richard Nixon broke that structure in 1971. He removed gold's convertibility. And overnight, our gold-backed currency became backed only by full faith in the U.S. government.

There was another key driver though. Today, we'll look at what it was... and why it could push gold to $3,000 an ounce... or even higher.

On Friday, I explained how a spike in inflation could be coming... and that it could lead to a massive boom in gold prices. We're digging into that idea a bit deeper today.

Again, inflation jumped from 2.7% in 1972 to 14.8% in 1980. That setup also kicked off gold's 1,200% rally over the same period. It was a darn impressive run.

Now, I don't expect to see the metal soar quadruple digits from here. And I don't expect we'll see double-digit inflation either. But we don't need the extreme inflation of the late 1970s for gold to rocket higher.

We just need inflation to start rising by a modest amount. Let's look at a few historical cases to see what I mean.

To try and fire the economy back up, the central bank cut interest rates 11 times in 2001 alone.

Low interest rates make it cheaper for businesses to borrow money. This encourages folks to spend more and take out debt to buy houses, cars, and other goods. And in the long run, these low rates can send asset prices soaring, eventually causing inflation.

That's exactly what happened. Inflation heated up, rising from 1.1% in 2002 to 5.6% by mid-2008. And gold prices took off...

Gold went from $282 an ounce on January 31, 2002 to $1,002 an ounce by mid-March 2008. That's roughly a 250% gain in six years.

The global financial crisis followed gold's 2008 peak. And the Fed once again cut interest rates to near zero. This time, inflation fell below zero in one of the worst recessions of our lifetimes. It hit -2.1% by July 31, 2009... And then it rebounded just as sharply as it fell.

By September 2011, inflation was back up to 3.9%. During that same period, gold spiked nearly 100% in two years. Gold even outperformed the S&P 500 Index over that period. Stocks were up just 24% in that two-year span.

Today, inflation is at 1.3%. And if the Fed has any say in it, we could see that number rise to 4% – or even 6% – in the coming years.

That will be enough to send gold on a multiyear bull run. And it means the metal could double – or more – from here.

That means $3,000 could be just the beginning for gold. It won't happen overnight. But the setup is in place. And that means ....

To read this article in Daily Wealth in its entirety, click here.

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