Exaggerated and seemingly outlandish predictions and forecasts about asset prices abound all over the internet, and even the mainstream of money managers and the financial news. Gold is no exception to this reality that affects all sorts of financial endeavors, from investing to trading to estate planning.
However, a respected voice who is entrenched in the financial markets believes gold should be valued between $5,000 and $6,000 per ounce right now!
This statement was not made by a gold bug or otherwise unknown pundit. Rather, it was uttered by Terry Duffy, the chief executive of CME Group, which operates the Chicago Mercantile Exchange, the parent organization that administers the COMEX or U.S.-based global commodities exchange.
One imagines Mr. Duffy's occupation gives him some knowledge of how asset prices, trading, and general market dynamics work. He has been the CME chairman for the past 15 years.
While speaking to an interviewer on Fox Business, Duffy explained his rationale for this bold comment that to most sounds prima facie outlandish. This is especially true given gold is current trading below $1,300/oz. This would be a fourfold increase, or +300%. Such gains over any short-term time horizon would be nearly unprecedented.
But Duffy believes that interest-rate policy and the underlying uncertainty therewith isn't adequately being baked-in to market valuations of risk. He said that the Fed has "confused the markets" and would do well to be clearer on its intentions: Will they normalize rates quickly now that unemployment has hit its targets, and inflation has remained so low? Or, will the Fed hold back on hiking rates and paying down its balance sheet in order to let markets overheat a bit more?
Based just on inflation over the past three decades alone, Mr. Duffy suggested that gold would be "$2,000 to $3,000 an ounce"; he went on to say that desensitization to the 21st-century news cycle has made markets less conscious of risk. Thus, with "what's gone on with the world" of unprecedented size, scale, and uncertainty, he thinks gold even ought to be $5,000 to $6,000.
While prices are likely to remain suppressed, it only takes one spark for Duffy's hypothetical to begin to resemble reality. So if another financial bubble pops anywhere—once the first domino falls—safe-haven demand for gold could explode. Remember that the last financial crisis really did start with one thread being pulled and a chain reaction causing the entire system to near the brink of economic depression. When that happens, you're going to want to hold precious metals rather than having all your wealth tied up in dollar, stocks, and bonds.
Moreover, the manager of the world's largest hedge fund, Ray Dalio of Bridgewater Associates, says gold prices are going up due to the rising risks that could impact other asset classes.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.