If history is any guide, we could be heading toward $4,000 gold. This according to analysis by US Global CEO Frank Holmes.
Holmes recently appeared on Kitco News and showed how the price of gold has historically correlated with the expansion of the Federal Reserve’s balance sheet. We’ve already seen the balance sheet balloon by over $3 trillion in response to the coronavirus pandemic and it currently stands at over $7 trillion. Holmes said he thinks the central bank will likely grow its balance sheet to $10 trillion before all is said and done. Given the historical trends, that’s extremely bullish for gold.
In the next three years, if we look back, if [history] repeats itself, from 2008, 2009 to 2011, that three year run from ’09 saw gold go from a $750 – $800 range up to $1,900. If we forecast that because we have the same expansion of the balance sheet of the Fed then it would project, if cycles are exactly the same, gold could go to $4,000.”
Holmes said there was a significant difference in the run-up to the 2008 crash and the years leading up to the current crisis. Before ’08, G20 finance ministers and government agencies were generally pro-growth and pro-trade. Ever since the ’08 crash, policy has revolved around synchronized taxation and regulation.
Now it’s synchronized money printing, monetary, fiscal stimulus that we’ve never seen.”
Consider this: when Alan Greenspan left the Fed, the central bank’s balance sheet was about 6% of GDP. Today, it has risen to 33%.
And this is how much money that Powell has to throw at this because of the coronavirus and the synchronized shutdown of the world. This is unprecedented. So, I think hard assets trade higher.”
Holmes used the word “unprecedented” to describe the Fed’s actions several times during the interview. He noted that the central bank has gone far beyond the QE programs during the Great Recession and is now buying corporate ETF’s and even individual corporate bonds.
They’re doing everything to maintain interest rates, not just corporately, but also from the government, low and negative so they can get this economic engine turning. And I think bad news ends up being good news when you look at the world of gold because the government is going to continue to print money.”
Peter Schiff has been warning we’re on the verge of a dollar crisis, recently saying, “There is nothing to stop the dollar from collapsing.” Holmes agrees with Peter. He didn’t use the term “dollar crisis,” but he did say he expects the greenback to see “a correction adversely related” to the $4,000 run in gold.
Holmes also said he sees price inflation in our future.
I think what will happen is the government will be slow and reluctant to raise rates while CPI trades higher, and therefore more and more government bonds have negative real rates of return. And remember, I said to synchronize, the cartel, the G20 finance ministers, that means we’re going to get a scenario which is greater than last August when there’s so much negative real bonds around the world. That will soar gold over $2,000. … I think by Christmas.”