5.8.26 - Can Gold rise to $40k?

5.8.26 - Can Gold rise to $40k?

Gold last traded at $4,721 an ounce. Silver at $80.39 an ounce.

If This Ratio Reaches 1980 High Gold Will Skyrocket To Over $40,000 -King World News

This is a small portion of a phenomenal report released today by Jesse Colombo: As the U.S.'s fiscal situation becomes increasingly precarious with each additional trillion dollars of debt, confidence in the long-term stability of the dollar is eroding, prompting global central banks to reduce their dollar holdings, as shown in the chart below, in favor of gold and other currencies, and this trend should accelerate now that the U.S. debt burden has surpassed 100% of GDP.

While we're on the topic of federal debt, I've found that it serves as a useful yardstick for evaluating precious metals by comparing them directly to the level of federal debt in order to determine whether they are undervalued, fairly valued, or overvalued. I do this by plotting the ratio of a particular metal's price to federal debt, indexing it to 100, and comparing it to past levels. If the ratio is low, the metal is undervalued, and vice versa.

Starting with gold, we can see that the gold-to-U.S. federal debt ratio reached 924 at the 1980 peak, 118 at the 2011 peak, and stands at 108 today. Because gold is only about two years into a secular bull market that, based on history, should last at least a decade, I believe the 1980 episode is the more relevant comparison. On that basis, gold has considerable room to rise over the course of this bull market, especially when factoring in continued increases in federal debt.