A New Prediction from Jim Rickards… $27,000/oz Gold!

James Rickards’ article “$27,000 Gold” presents a bold forecast that gold could reach $27,000 per ounce. Rickards’ analysis is rooted in a potential return to the gold standard and the implications of such a shift for gold pricing. Here is an in-depth analysis of the key elements of his argument, incorporating his calculations and rationale:


Gold Standard and Monetary Policy

Rickards begins by discussing the potential return to a gold standard despite the reluctance of central bankers to embrace such a system. He posits that under extreme conditions, such as a collapse of confidence in fiat currencies due to excessive money creation, Bitcoin competition, or a new financial crisis, central banks might have no choice but to revert to gold to stabilize the monetary system. This hypothetical scenario sets the stage for his gold price projection.


Calculating the Gold Price

The central question Rickards addresses is the appropriate dollar price of gold under a gold standard to maintain monetary equilibrium. He explains that if the dollar price of gold is set too low, it would be deflationary as people would hoard gold, forcing central banks to reduce the money supply. Conversely, if the price is too high, it would be inflationary due to increased spending.

Rickards uses the U.S. M1 money supply (a measure of liquid money) as the basis for his calculation. As of his writing, the U.S. M1 money supply is $17.9 trillion. He assumes a 40% gold backing, which was historically required by the Federal Reserve. Applying this ratio:


0.40 x $17.9 trillion = $7.2 trillion

He then divides this figure by the total U.S. gold reserves (261.5 million troy ounces):

$7.2 trillion / 261.5 million troy ounces = $27,533 per troy ounce


This calculation yields Rickards’ projected price of $27,533 per ounce of gold, assuming a 40% backing of the money supply by gold. He acknowledges that different backing ratios (e.g., 20%) would yield different prices, such as around $12,500 per ounce, illustrating the sensitivity of his forecast to the backing ratio.


Supply and Demand Dynamics

Rickards also analyzes the supply and demand factors that could drive gold prices higher. On the supply side, he notes a decline in new gold mining output in the U.S., with a 28% decrease over seven years despite rising gold prices. This trend suggests constrained supply, which could support higher prices.

On the demand side, Rickards highlights the increasing demand from central banks, which have significantly increased their gold purchases from less than 100 metric tonnes in 2010 to 1,100 metric tonnes in 2022, a 1,000% increase. Central bank demand remained strong in 2023, with 800 metric tonnes purchased by September, indicating ongoing robust demand.


Mathematical Perspective on Price Movements

Rickards employs a mathematical approach to illustrate how gold could reach his projected price. He argues that while initial percentage increases in gold prices are significant (e.g., from $2,000 to $3,000 is a 50% increase), each subsequent $1,000 increase represents a smaller percentage gain (e.g., $3,000 to $4,000 is a 33% increase, $4,000 to $5,000 is a 25% increase). This diminishing percentage increase makes it progressively easier for gold to reach higher nominal prices as it ascends.

For instance:

– From $2,000 to $3,000: 50% increase
– From $3,000 to $4,000: 33% increase
– From $4,000 to $5,000: 25% increase

By the time gold reaches $14,000 to $15,000, the percentage increase is only 7%. This mathematical principle suggests that as gold prices rise, smaller percentage gains can still result in substantial nominal increases, facilitating the march toward $27,533.



Rickards concludes by urging investors to buy gold now, leveraging the lower base price for higher percentage returns as prices climb. He emphasizes that early investment allows for greater accumulation and benefits from the compounding effect of rising gold prices. His analysis underscores the potential for significant gains, driven by a combination of supply constraints, increasing demand, and the possibility of a return to a gold standard under specific economic conditions.

Overall, Rickards’ forecast of $27,000 gold is based on rigorous analysis involving historical monetary policies, current economic indicators, and fundamental principles of supply and demand. While speculative, his argument is grounded in plausible economic scenarios and detailed calculations.



This post is an analysis of an article written by Jim Rickards: $27,000 Gold

Please visit https://dailyreckoning.com/author/jrickards/ to read other articles written by Jim Rickards.

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