Will Gold Reach $5000 an Ounce?

Gold surged a further 3.3% yesterday to $942.45 (as did silver) as worries about the US and global financial system and economy continue to grow and governments print money on an unprecedented scale to combat the economic crisis. Asian and European stock markets are again under pressure this morning.

The strong close above $930/oz yesterday should see us once again challenge the record highs of $1,003/oz seen last March (March 17th) when Bear Stearns collapsed.

We have since had a long period (nearly 12 months) of correction and consolidation and thus a solid foundation has been built from which the next leg of the bull market will likely be launched. Our forecast at the beginning of the year for gold to rise as high as $1,250/oz looks increasingly conservative.

Gold Surges to New Records in Euros and Sterling as Crisis Deepens

Gold continues to surge to record highs in other major currencies (the London AM Fix this morning was at $944.00 USD, £666.33 GBP and €737.04 EUR. Worries about the health of the financial system and economy in the UK and EU are leading to weakness in the euro and sterling that has seen them fall in value versus gold. Gold has surged to €737/oz and over £666.33/oz (see charts below).

Gold to Reach $5000/oz According to Respected Goldcorp Founder

The respected founder of Goldcorp (GG), Rob McEwen told Bloomberg how he sees gold rising to as high as $5,000/oz in the next four years. Goldcorp is the second largest gold mining company in the world by market capitalization.

As governments increase the money supply to combat recession, bullion will more than double to $2,000 an ounce by the end of next year. “Politicians around the world are listening to cries from their electorates and they’re giving money to all callers,” McEwen said yesterday.

McEwen has more than $100 million in gold investments and said he also has a “big, big” holding in bullion. McEwen said he started buying bullion in August 2007, at the beginning of the subprime mortgage crisis. “I realized we had reached an inflection point regarding money,” McEwen said. “It was all about protecting money, and gold served that purpose.”

The recent trend of fiat currencies falling vis a vis gold looks set to continue for the foreseeable future. McEwen’s bold prediction looks outlandish now (as did predictions of gold at over $1,000/oz in 2001) but given the confluence of extremely strong fundamentals, gold will likely rise to levels in the coming years that seem unfathomable today.

Stock position: None.

Comments

[ROLEX18:]

Of course it will reach 5000$ but most of us will be dead by then, while we are alive there is more chance to see 500$-600$ by August, one other thing I almost forgot to say, Gold will never break through it's previous high of 1030$, yeah I know it's so near, I know, but this is the rules of the game, to send you to bed with hope and good dreams, so in the morning it will start and in few weeks even 900$ will look like a history.
Good luck holding my bag, I am short.

Feb 12 11:46 AM

[silverwood:]

A $5000 per ounce gold price could well be a possibility, especially if there is a gold/dollar peg by our Government to return our country back to a path of honest money and strip the Federal Reserve of it vastly unwarranted powers.

The way I see the price of gold in the immediate future is a battle royale with those oppossed to gold. Gold will go and challange it's old 08 high of $1030, but it may well take several attempts to break through that resistance. I say we see $1200 gold price this year and never see $500 again.

Feb 12 12:05 PM

[zztop2503:]

You guys could have my coins, I am selling them now

Feb 12 12:33 PM

[lance sjogren:]

$5000 gold seems like a stretch.


It looks to me that the US is going to devalue the dollar about 50% over the next four years.

I believe if the dollar is devalued 50% that it will probably then be possible to stabilize it at that level. An effective cut of 50% in the real value of existing debt of various forms (govt, consumer) will probably get it down to a level where it can be serviceable.

(the other alternative is for the US simply to go into default)


But, after the dollar is devalued 50%, I think there will be a huge effort to stabilize it there. By then there will be a Republican congress and they will be strongly oriented toward stopping the hyperinflation train set in motion by Bush and Obama.

Feb 12 12:36 PM

[lance sjogren:]

I believe I forgot to include my main point, which is that a 50% drop in the US dollar over the next 4 years means $2000 gold is very believable, but I think $5000 gold is unlikely.

Feb 12 12:38 PM

[Cesato:]

To mention Gold as USD 5.000 is just a speculative waste of time, it's been analyzed so many times. When analyzing Gold one has to keep in Mind a timeframe between 1 and 3 years and a sensible technical/fundamental/... perspective. Also everytime that Gold reaches new highs and pulls back USD 250 or so, everyone begins talking about a bearish trend. There is no such a bearish trend in sight, the break of USD 930 only confirms that Gold broke out the consolidation range and luckily we'll see USD 915 soon where I'm going to buy again the very same Gold that I foolishly sold at USD 930. Target price before a decent pullback is somewhere between USD 1.150 and USD 1.230 sooner that you may say Oops. Longer Term can only be forecasted on Dec 09. Whoever predicts Gold at USD 5.000 whitin the next 5 years should join Goldman Sachs that predicted Oil at USD 200 for 2008.

Feb 12 12:52 PM

[traxcavator:]

Rolex18
How much have you lost so far? Trying to jawbone your wishful thinking into reality by constantly posting here doesn't seem to be working. Maybe you can get someone with more credibility (like Barney Frank) to do your jawboning to a wider audience.
Neither you nor I know what will happen in the future. Things we do know are: The government/Fed is creating a lot of dollars out of thin air, The economy is looking really shakey, No one either here or abroad in government seems to have any idea of how to reverse things ("stimulus" plans that are really pork plans don't seem convincing to the markets)
I've owned gold twice in my life, first during the Carter years, and again now. Until I see a Volker who recognizes that they can't spend themselves out of problems created by spending paper, I'll stick with hard assets. My guess may or may not be as good as yours.

Feb 12 12:52 PM

[Whippet:]

Traxcavator- you nailed it. And to think even when Volcker did everything in his power to tighten money and soak up $$ A) he didn't reduce the money supply much (look at the charts), B) gold hit $800 (pre inflation adjusted) an ounce, and C) the inflationary fundamentals he fought against weren't nearly as strong. Now that he is hanging around the White House as Obama's window dressing, bringing coffee to Tax Cheat Timmy, and Helicopter Ben is in the seat of power- watch out. I'd still rather own silver, oil, and food as their upside is even greater (currently long oil, gold, silver, and miners).

Feb 12 01:41 PM

[Doc 224899:]

IVN Ivanhoe Mines just got notification (Feb 12, 2009) from the Mongolian Government that the government will accept a 34% stake in Oyu Tolgoi mining resources, which finally (finally !!) means they can go ahead and mine the potentially richest gold-copper resource area in the world with an agreement that will permit profitable production. They've been stalled on this project since 2006, as have other miners like BHP and RTP.

Just days ago (Feb 10, 2009) SouthGobi Energy Resources, a majority-owned subsidiary of IVN (IVN owns 80.2% of the stock), made a stunning announcement that Alexander Molyneux has been appointed as President of SouthGobi, effective April 29, 2009. Molyneux leaves his position as Citigroup’s head of Metals and Mining Investment Banking, having worked with Asia-based clients since 2002, having raised over $20B in capital for clients in the region and having managed numerous mergers and acquisitions in the Asian metals and mining sector. It seems obvious that Ivanhoe and SouthGobi intend to use Molyneux’s prominence and success in the region to advance the Mongolian SouthGobi project, which involves about over 150,000,000 tons of coal.

As a parent corporation, Ivanhoe has intertwined itself with two subsidiaries in the enormous and rich Mongolian exploration, development, and production project: SouthGobi Energy Resources and Entrée Gold (EGI). Specialists within Ivanhoe have been appointed and moved around between the three corporations so as to achieve maximum results, while resource leases and licenses have also been re-positioned for optimal results and minimal risk. Mega-miners like RTP and BHP have partnered up with Ivanhoe in Mongolia, and they’ve all been waiting for the fledging Mongolian government to get focused and complete the requisite formal agreements for almost 3 years. Most of the mineral riches produced will be shipped by rail to China, which is just 30 – 50 miles away from the resource districts under development. The core rail lines have already been built, either by the Chinese, or with the cooperation of the Chinese, though more roads and rails will follow.

Altogether, this explains the timing of the surge in Ivanhoe stock prices over the last couple of days (low of $3.15 on Feb 10, high of $4.20 on Feb 12). A quick chart analysis indicates that there is no resistance between the current IVN stock price around $4 and the next resistance level of $8. 18 months ago the projected price for IVN was ~ $19. All of that was lost due to hold-ups by the Mongolian government, superimposed on fluctuations in the broad market and in the prices of gold and base metals and non-metallic minerals. Expect EGI Entrée Gold prices to jump, too, as will SouthGobi stock (OTC: SGQ in the US).

As a gold miner, IVN’s share prices have been suppressed by the Mongolian government’s tardiness, resulting in a dramatic underperformance, but that logjam appears to finally be breaking up, and we may see IVN share prices play catch-up in a dramatic fashion over the next few weeks.

Feb 12 01:48 PM

[Richard K:]

I would love to see gold break 1000, something like 1200 or even 1500 would be great, but much beyond that would threaten chaos for fiat-currency players (which is all nations) and would never be allowed to happen.

I am not going to suggest any paranoid scenarios (there are plenty out there if you look), but something drastic would be done and it probably would not benefit gold investors.

Feb 12 02:03 PM

[PROXIMO:]

Gold at 5k per ounce within the next 3-5 years makes AT LEAST as much sense as, say , an early 2009 forecast of $38 per barrel oil would have sounded late last Spring, when oil was around $148 per barrel. People who think they have a mortal lock on the ABSOLUTE TRUTH in this economy are in severe need of psychological evaluation.

Feb 12 03:01 PM

[phdinsuntan...:]

Gasprom announced oil $ 200 last year,
I announce my product 1000% next year,
why not, is a more or less free world.

Feb 12 04:46 PM

[Ian R. Camp...:]

Mr. O'Bryne offers no analysis to suggest why gold might go to U.S.$5.000, nor does he quote McEwen as providing other than McEwen's opinion on such a price. I have not contemplated gold at $5,000, but if such a thing were to occur that would mean (as I see it) that the U.S. and world economies would be in place I don’t want them to be.

Feb 12 08:11 PM

[mr freddo:]

The rise of gold is being driven by a lack of faith in the traditional investments of stocks and bonds. As the financial crisis continues to unfold, there are very few reasons for optimism over the next 3 to 5 years.

This depression is just getting started. Investors will be desperate to maintain value and will turn to gold. Earnings will continue to deteriorate driving the stock market down to the 5000 to 6000 range. A wave of bankruptcies will swamp the federal government which will finally run out of credit. A run on the banks will cause them to be closed for an indefinite period.

At that point, $5000 per ounce will sound cheap.

Feb 12 10:35 PM

[gca1:]

If we were to have runaway inflation in the US (on the order of 20% or higher), then I believe that we will see gold prices go well beyond $2000 per oz. We have only to look at oil's move from $10 per bbl to $140 per bbl to $35 per bbl to see how volatile commodity prices really are. Some of the Juniors saw their stock prices sink 80% or more last year. These same juniors are up more than 80% this year.

The question is not how high gold can go, but what is a sustainable price for gold two or three years from now. The answer will be driven by fundamentals, inflation and emotion. Unfortunately no one can predict inflation and emotion.

Feb 12 11:22 PM

[Mr. Ed, Jr.:]

Well, we will certainly find out soon enough how wise it is to short a market that is being pushed higher by fear. I will bet that fear trumps any card shorts are holding.

Feb 13 02:13 AM

[5142152-337:]

Alright Rolex18, you surprised me! I think you need to chill. Reassess and come back to us. While you are chillin, buy some yellow mellow.

Silverwood, did you use "honest" and "government" in the same sentence? That's a no-no. Otherwise, your spot on!

traxcavator, that analogy with Barney Frank and credibility is genius! You get my THUMBS UP!

zztop2503, let's get together, I am DEFINITELY interested in your holdings!

Feb 13 09:44 AM