Huge Upside for Gold Prices
Pierre Lassonde, the legendary gold investor, predicts the gold price could sextuple to reach $8,000 an ounce based on a connection between the Dow Jones Industrial Average performance and the gold price change over the past eight decades.
In an interview with BNN, the 69-year-old businessman said that during strong gold bull markets, the gold price often hits a one-to-one ratio with the Dow.
“The five-year bear market for gold is over and we are at the beginning of a new bull market,” the chairman of the Toronto, Canada-based Franco-Nevada Corporation (NYSE:FNV) told the Canadian business channel on Tuesday. (Source: “Gold could hit US$8,000 as bull market returns: Pierre Lassonde,” BNN, March 8, 2016.)
“In 1980 gold was at $800.00 and the Dow was at 800; in 1934 gold was $36.00 and the Dow was at $37.00—where is the Dow today?” he asked host Catherine Murray. “Do I know it’s going to go back to 1:1—I don’t know… even if it gets to 2:1, that’s $8,000—I’m slightly optimistic.”
Gold has rallied 19.7% so far this year, making it the best-performing investment in 2016. April gold closed at $1,272 an ounce on Thursday.
“I’ve been saying for the past six months now is a good time to buy gold,” Lassonde said. “You have to buy [gold stocks] when you hate them and sell them when you love them.”
Gold mining stocks have also benefited from bullion’s 2016 rally. Shares of Toronto, Canada-based Barrick Gold Corporation (NYSE:ABX) have nearly doubled to $14.20, while shares of Lassonde’s Franco-Nevada itself have surged 37% to $62.49.
Another financial analyst, Peter Schiff, predicted gold may reach $5,000 an ounce during an interview on Monday. (Source: “Schiff: Zero rates, QE4 by election, and real estate crash looming,” TRUNEWS, March 7, 2016.)
Investors have been turning to the yellow metal due to concerns over a serious economic slowdown in China, the world’s second-largest economy, and weak crude oil prices. The recent trend by central banks toward adopting zero or negative interest rates has added one more reason for investors to choose gold.
Lassonde said that under negative interest rate policies, people are charged on their deposits with banks and banks are charged for their deposits with the central bank. According to him, that has helped to push bond yields lower and made zero-yielding gold more attractive.
The European Central Bank loosened monetary policy again on Thursday, cutting its key lending rate, known as the “refi rate,” from 0.05% to zero. But ECB President Mario Draghi played down the potential for further interest-rate cuts below zero.
“One of the big knocks on gold is that you have to pay to hold it,” Lassonde said. “Now even bonds have a negative carry.”
The yield on the 10-year German bond settled at 0.3%, while the yield on the benchmark 10-year U.S. note finished at 1.9% on Thursday.