Will Gold Return to Pre-2008 Prices in the Sub-$800 Range?
According to the World Gold Council, as of the end of 2017 total gold market capitalization was around $7.8 trillion (estimated total value of all gold ever mined). The current value of gold is $1215USD/oz. Besides some ups and downs, the value has remained unchanged since the summer of 2013. The stagnation in the gold market could be an indicator of a lot of different things, but it does stand in contrast to the predicted boom which many were sure would accompany the Fed's normalization of monetary policy.
We are now a few years into this monetary normalization and the gold market is still as stagnate as it's been for the last 5 years. This does not bode well for gold as the world is on the threshold of a new asset class exploding in capitalization. At the last ATH (all-time high) in January of 2018, the total crypto market capitalization reached just over $800 billion. This is small compared to the $7.8 trillion gold market, but consider that massive institutional investment hasn't even entered the crypto market yet.
As American GDP continues to grow, and it will, alongside global GDP for numerous reasons which I will review in another forthcoming article, it will become apparent to most investors that the Fed's normalization of monetary policy, being interest rate increases and a reduction in the Fed's balance sheet, will not have the long-predicted impact on inflation, and in turn gold valuations. This is something I have accurately predicted since 2014.
We could, in fact, see gold return to pre-financial crisis prices in the sub-$800 range. The lack of growth in the gold market for the last 5 years should be an indicator to most investors that demand for the precious metal is lackluster at best. Though nations such as China and Russia have continued to accumulate gold, there will be no new gold standard based on a gold-backed yuan or ruble. Gold standards are deflationary by nature and most nations now understand that a new global standard is being built around the speed, cost, and scalability of the crypto market. Both Russia and China are building their own internal architectures to connect with this worldwide crypto ecosystem.
No nations, banks, or institutions will be interested in turning back the clocks on technology, and a whole new source of liquidity, just to accommodate a gold market which will be swallowed by the new asset class within the next 12 to 18 months. For sure there will always be gold, but the gold market itself will become a sub-market to the crypto market in the same fashion that the stock and bond markets will eventually become sub-markets as well. Analysts who do not understand what I just stated do not understand the totality of what is happening in the crypto market. Period. They will be leading their clients in the wrong direction.
Most think of Bitcoin when the crypto market is mentioned. Even with just that, there is a shocking lack of understanding by traditional old-school analysts and financial advisors around Bitcoin and what it actually is. Attempting to explain that Bitcoin's throne will soon be usurped by the digital asset XRP is simply too much for these analysts to understand. Add in the concept of the Internet of Value, micropayments, smart contracts, and Ripple's Interledger Protocol, alongside how Mojaloop is going to give 2 billion people in emerging markets access to the global system of banking and commerce for the first time, and it becomes apparent that any predictions and conclusions which do not factor in the above will be disastrously wrong.
This September will likely mark the turn in the current crypto bear market and a new bull market will take off with massive institutional investment in Bitcoin ETF's and hundreds of exchanges. These exchanges have spent most of 2018 building and strengthening their systems to accommodate the millions upon millions of investors who will flood into the crypto market. Capital will be sucked out of the gold market and into the exploding crypto market.
The price of gold is not the real story here, whether its $800 or $1800. The real story is the rise of a whole new asset class which will serve as a new source of global liquidity. The existing $7.8 trillion gold market will be completely inundated by the crypto market as it expands across all financial sectors and within all financial products. Nothing will stop it.
There is much to learn and share regarding crypto investment opportunities and the geopolitical ramifications around the development of a new global standard. Please consider subscribing to Philosophy of Metrics for full access to all articles and content. This will support my research and writing on these important topics. Monthly and Yearly subscriptions are the best we have right now, but as an example of how things are going to change, the micropayments industry which is being built around XRP will be embedded in your browser and you will just pay for an article that you click on. No more clunky subscriptions. You pay for a click and a read. But for the time being, your support is appreciated. - JC
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