To summarize these declarations from Petrov, gold will increase in VALUE under all possible future deflation/inflation scenarios. - mobax
“…For example, if a genuine deflation grips the U.S. economy — like the deflation of the 1930s — then $1,500 for the top of the gold bull market might be too high. On the other hand, if a long 1970s-style stagflation is in the cards, $5,000 is too low. The point is that a call for the price of gold without clear economic assumptions is a wild guess.”
“A well-established proxy for the price of financial assets is the Dow Jones industrial index. The single best proxy for commodities is gold. Their price ratio, the Dow/gold ratio, tells us how many ounces of gold buy one unit of Dow Jones. If today the Dow is 13,600 and gold is $800, the Dow/gold ratio is 17. Today, it takes 17 ounces of gold to buy one unit of the Dow index.”
“So how high will gold go? The correct answer is simple: as high as the Dow Jones. It is important to understand that this method does not tell us when. It could be five, 10, or 15 years. It also does not tell us how high. It could be $2,000, $10,000, or $50,000.”
“Which scenario is most likely depends on how the Federal Reserve approaches inflation. Based on the Fed’s reaction, there are three possible future scenarios: (1) deflation, (2) stagflation, and (3) strong inflation. Let us consider each in turn.”
“The first scenario, deflation, implies a major contraction in the supply of money and credit, similar to the one during the Great Depression […] Under this scenario, a reasonable forecast for the Dow will be about 1,000-1,500, while the gold price will be likely in the range of $800-1,500. This scenario is highly unlikely, since the Fed will fight tooth and nail to prevent a deflation from taking hold.”
“The second scenario, stagflation, is most likely. It should look similar to the 1970s. The Dow peaked in 1966. It made little progress for about 15 years. By 1980, it was just about where it was in 1966, roughly around 1,000. Gold, on the other hand, soared by 25-fold — from $35 to $850. This means that strong inflation during the period kept the Dow from falling, so it did not fall as it did during the Great Depression. In this scenario, we should expect the Dow to remain bound in the 10,000-15,000 range. Then, a gold forecast of $10,000 is perfectly realistic.”
“The third scenario, very strong inflation, is definitely possible, although less likely than stagflation. A strong inflation could push the Dow up to 30,000-50,000 in the coming decade. However, this would also push gold prices up to $20,000-50,000. It is possible, but, in my opinion, not very realistic.”
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