According to Jim Rogers recently in Bloomberg, gold could hit $2000 over the next decade.
Should you? Here is our view:
- Gold prices in USD quotation could potentially hit $2000 per troy oz only when: 1. US inflation and global inflation rates are at very high level (e.g.: 10% and above), 2. US Dollar value continues to depreciate rapidly (10 to 15% persistent decline every year in the near term will push any commodity prices quoted in USD to be higher) vs. other key global currencies, and/or 3. investor confidence in and global demand for US Treasuries and other major developed countries' government bonds declines.
- Gold is historically one of the worst asset classes to hedge against long-term annual inflation rate; hence, currently slow economic recovery coupled with potentially slightly higher inflation rate might not cause gold to reach $2000 per troy oz. One shall not forget that gold bullions in itself is an asset class that does not have underlying business operations and hence, is not able to provide revenue and income to the asset holders. In addition, every year, physical gold holders or investors likely need to spend storage fees to keep the gold somewhere very safe.
- We consider gold as one of the indicators of people's optimism (euphoria) or pesimism (fear) in the world's economy and inflation rates; Gold has somewhat similar utility function to the market volatility index and the investor confidence index. When general public and investors' aggregate confidence, optimism, and/or perceptions on the current and/or future state of the economy are very low coupled with high level of fear to put more money in the stock markets and/or bond markets, gold price many times increases, and vice versa.
- Gold investors and traders should always be well-prepared with unexpected movement and price volatility. Nothing is fully clear and certain in any markets, in any asset classes especially in commodities including gold.
Disclosure: Author does not have position in gold; author's position may change at any time; Note: Article was originally published on sovestor.com