Gold Prices: This 1 Thing Could Send Gold Prices to $5,000

Gold PricesCentral Banks Bullish for Gold Prices

Think long-term and global when looking at gold prices. The yellow precious metal could be worth much more than it is today. In fact, $5,000-an-ounce gold doesn’t seem like an irrational idea in 10 years.

To see where gold prices will go in the long-term, investors should pay extra attention to one thing: money printing on the global level. As it stands, if you look closely, it seems as if there’s a flood of fiat money hitting the global economy.

You see, there’s still big debate about how to price gold. It doesn’t pay any dividend or any interest like other investment instruments, so investors tend to get confused about its value.

One thing we look at is the price of gold and the level of money printing; this tells us something very powerful. Simple put, the more money there is, the higher gold prices go. Below, I have identified a few examples of where a country’s central bank has printed an immense amount of paper money and how gold prices look in their relative currency.


Money Printing Equals Higher Gold Prices

Let’s look at Russia as our first example. Between 2006 and 2015, the amount of the most basic money in the economy—also known as the “M1 money supply”—increased by more than 300%. Gold prices in the local currency jumped by more than 400% in this time. (Source: “Russia Money Supply M1,” Trading Economics, last accessed February 3, 2016.)

In India, the M1 money supply has increased by roughly 175%, between 2007 until October of 2015. Gold prices in India in early 2007 were around 25,000 rupees an ounce. Now, the price of gold in India is around 90,000 rupees an ounce. Simple math says taht gold prices in India have increased 260%. (Source: “M1 For India,” Federal Reserve Bank of St. Louis web site, last accessed February 3, 2016.)

I can go on with more examples. I have yet to see one country where the money supply is actually decreasing or flat. Look at the chart below; it shows the long-term trend for the most basic money supply in the U.S. economy. It’s skyrocketing, too.

fred m1 money stock chart

Here’s what you also should know: on a global level, we are bound to see more money printing. (Read more about this here: “Gold Prices: 1 Big Reason to Be Bullish on Gold?”)

What’s Next for Gold Prices?

I remain very optimistic toward gold. The yellow precious metal declined for all the wrong reasons. So far this year, gold prices are up 6.5% already. With all that’s happening around the world, I will not be surprised if the gains sustain. 2016 could be the year gold prices increase overall for the first time since 2013.

With all this in mind, I’d keep a close eye on gold mining companies.

As investors started to dislike the precious metal, gold mining companies were outright hated. When gold prices move higher, these mining stocks will provide solid returns to investors. I will not be surprised if gold prices move 20%–30% higher, with some gold miners’ prices doubling. If we assume that gold is headed toward $5,000 an ounce, gold mining stocks’ prices could see exponential gains.