Morris calculated the price of gold by 2030. The price of a troy ounce can rise up to 7,000 USD.
07. 08. 2020
Investors around the world are surprised. Gold has become a leader among investments. It has beat the shares both in developed and emerging markets. The great news is that if you invested USD 100 in yellow metal at the beginning of the 21st century, now you have almost 6 times as much. But in the next ten years, you will earn much more. Economist Charlie Morris predicts that by 2030, a troy ounce of gold will cost more than USD 7,000.
When we look back to 2,000, we will see the main driving force of the price of the precious metal. That is lowering real rates, with the United States reducing its bond yields by the expected rate of inflation. They have recently even reached negative numbers. Therefore, it is no surprise that gold has become very popular. However, a little bigger surprise is the reason why it was sold so cheaply...
Gold as a tree-frog for inflation
“Since the beginning of the millennium, the price of gold has been below its real value, which is given by the rate of inflation and interest rates. Gold exceeded its real value in 2008, reaching an imaginary ceiling in 2011, from which it receded for a few years. Now it can come back,” Morris comments the gold price development.
According to Morris, gold is a safe haven, but especially in times of crisis, when real yields are going down and inflation is rising. However, the metal can adapt very quickly even to the opposite phenomenon – deflation, which is a sign of a high-quality asset. “Gold has an amazing ability to predict inflation before it comes, and once it retreats, gold withdraws, leaving the room for other investments to grow.
This was also predicted between 2000 and 2005, when its price was growing in the same way as between 2008 and 2011. At the beginning of 2018, the price of gold began to wake up again, which brings us back to the present and next year, when another major wave of inflation should come up according to Morris.
“Gold is already compensating for the current rate of inflation. It reacts to real rates which show the value of cash.”
Why will the price of gold rise so by 2030?
It is necessary to consider three main factors that have an impact on the price of yellow metal. The first of them is the rate of inflation (which, however, is difficult to predict accurately), real rates are the second factor, and the third one is the price of gold relative to real value.
“It is difficult to predict the inflation precisely. That is why I will take it easy”, Morris writes in his forecast. “If the average inflation rate for the last decade is 4 % per year, we will reach 48 % from 2018 to 2030.”
If the inflation rate is around 4 % and the FED keeps interest rates at current levels, the real value of gold will reach USD 4,124 by 2030.
Finally, the price of gold on the stock exchange in relation to real value. The price of gold in 2011 exceeded the real value by 50 %. “Given the depth of the crisis, it is fair to say that the price of gold will be quite similar.” Thus, compared to today, Morris assumes an increase of this ratio by 21 %.
The above-mentioned factors need to be viewed rationally if we want to assume the development of the price of gold. Based on Morris's assumptions, the yellow metal, with its price, should reach USD 7,370 per troy ounce in 2030.
Charlie Morris is an analyst and economist at Atlantic House Investment Fund. Previously, he worked in the financial group Newscape and in the HSBC Investment Fund. He has always overseen managing diversified portfolios.