Gold Faces Possible 45 Percent Correction Before Surging to $25,000 in Monetary Regime Change
Leigh Goehring of Goehring and Rozencwajg joined Jesse Day on Commodity Culture to discuss the current gold market and why he believes a significant pullback remains possible even as the long term bull market stays intact. Goehring has navigated multiple gold cycles and he sees the present environment as one where rising real interest rates could still force further liquidation. He pointed to historical precedents after 1974 and after 2011 when gold declined roughly 45 percent during periods of tightening monetary conditions.
“Real rising real rates will cause investors to really start liquidating gold. So is there another leg down? Could we decline by 45 percent like we did post 1974 or post 2011? Yeah we could. So I think that is the type of correction that we are going to go through.”
Despite the near term caution Goehring remains firmly in the long term bull camp. He argued that every major gold bull market over the past 120 years has been driven by a global monetary regime change and he believes one is underway now. Under that framework he sees the potential for dramatically higher prices once the current correction runs its course.
“Our belief is it is still in a long term bull market. We believe that there is one huge bull market leg in front of us. One of the things that is going to be the big underlying driver of this upcoming gold bull market is there is going to be a monetary regime change on a global basis.”
Goehring walked through the arithmetic that supports his higher targets. If the Treasury’s gold holdings were ever to cover the monetary base by 1.7 times as they did in 1937 and again in 1980 the implied price would reach $25,000 in a stress scenario. He also noted that an 80 percent decline in the Dow back toward historical book value could push gold into the $8,000 to $9,000 range.
“Could we cover the monetary base with the Treasury’s gold holdings by 1.7 times like we did in 1937 in 1980? Yes. Well what does that give you? That is a $25,000 gold price in a worst case scenario. I think gold goes to 8 or 9,000.”
The interview underscores the tension between short term price pressure from rising real rates and the longer term structural case for gold as the world moves away from the current monetary regime. Goehring advised patience for those who can look through the volatility while noting that performance oriented managers may need to rotate capital until clearer signals emerge.
