No Profit Potential In Gold

NO PROFIT POTENTIAL IN GOLD

Seems like the gold bulls are getting worked up again for another charge at some lofty fantasy peak. It is a wasted effort.

The closer gold’s price is to it’s most recent inflation-adjusted price peak, then the less potential for short-term profits. See the chart below…

The peak (monthly average closing prices) for gold in July 2020 was $1971 oz. The intraday peak was somewhat higher at $2060 oz.

On an inflation-adjusted basis, those numbers are now $2139 oz. vs. the $1971 oz., and $2230 oz. vs the $2060 oz. intraday peak.

IF the gold price were to match the previous top on an inflation-adjusted basis, then there is a possible increase of somewhere between 2-300 dollars per ounce in the offing.

The closer the gold price gets (currently $1920 oz.) to $2000 oz., though, the less reliable are any such expectations. Here’s why…

PREVIOUS GOLD PRICE PEAKS

All inflation-adjusted gold price peaks since 1971 occurred at similar points.

That is because at those points, the gold price reflected fully the loss in purchasing power in the US dollar that had already occurred previously. This can be seen on the chart below…

For example, the peak in 1980 ($850 oz) allowed for depreciation in the US dollar that had occurred up to that point. The peak in 2011 ($1895 oz.) allowed for US dollar loss in purchasing power that had taken place since the previous peak in 1980.

Recently, in 2020 ($2060 oz.), the gold price peak reflected additional inflation effects that occurred after 2011 and up to 2020. (see The Meaning Behind Gold’s Triple Top)

GOLD PRICE IS ALL ABOUT THE US DOLLAR

There is very little gold can do at this point unless the US dollar were to weaken significantly and quickly. That is not likely to happen.

Even in the face of confrontation between the US and Russia, the US dollar is stronger; not weaker.

Those who claim that gold will benefit from geopolitical storms and economic crises are mistaken.

The gold price moves higher for one reason only: to reflect the accumulated loss in purchasing power of the US dollar. It does so in hindsight, too.

With a US dollar that strengthens as other crises deepen and multiply, there is no reason to expect new highs in the gold price. 

(also see What’s Next For Gold Is Always About The US Dollar)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!