As Goes Gold, So Goes the Economy

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Has gold lost its shine? It’s down 5 percent in the last three months. No surprise. We’ve been forecasting for years that gold prices will decline as the U.S. dollar gained ground, and that’s what’s driving the prices lower.

Up until recently, the price of gold has varied only modestly, with positive and negative swings in ranges under $30 per ounce, keeping prices between the $1,300 to $1,350 per ounce range.

Generally speaking, when the dollar is strong, gold is weak. But there are other dynamics to watch, especially as the prospects of hot wars and trade wars heat up.

As we have consistently said, there's no safer “safe haven” asset than gold. And an important and under-reported factor to watch is gold inflow to the market.

Here are some basics: North American gold-backed exchange traded funds saw inflows this past April at the highest rate since September 2017, as Israel conducted bombings in Syria in response to missile attacks from Iranian-backed forces there.

This increase was significant because it occurred while the U.S. dollar is still trending strong. Moreover, even before Middle East tensions escalated and even as the dollar strengthened, gold did fall below the $1,300 per ounce threshold.

However, there are key factors that hold the price of gold from falling sharply. One of them is cost of mining gold and bringing it to market.

The cost of mining gold and bringing it to market is a key determinant of how low the price can go. For example, the sudden, sharp rise in oil prices have put a damper gold miner's shares.

As the cost of energy and labor increases, so does the cost of pulling gold from the ground. While cheaper to mine it in Peru than China, for example, the real cost of production remains uncertain.

Thus, considering American Bullion, Inc’s, price tag of $1,200 an ounce to extract gold , it is reasonable to assume that miners are not going to spend more to pull it out of the ground than they can make selling it.

TREND FORECAST: If full-fledged war breaks out in the Middle East, the price of oil will skyrocket and so too will inflation. The higher inflation rate, the higher gold prices. And that too will increase the cost of mining gold.

Thus, with gold hovering around the $1,300 range, we have long forecast a downward slide in the $100 range. And, despite rising U.S. interest rates and a strong dollar, should geopolitical and economic conditions significantly deteriorate, and gold prices rise above the $1,450 mark, we forecast a rapid spike to $2,000 per ounce and above.

While we don’t provide financial advice, we do forecast that war will drive oil prices to the Panic of '08 levels, reaching $150 per barrel. Then it will crash equity markets worldwide, along with the dollar, euro, yen, and yuan, and especially the fiat currencies of deeply indebted nations.