It’s a golden era for gold enthusiasts.
At the start of 2024, gold was valued at approximately $2,043 per ounce. By the end of last week, it had climbed to over $2,330 per ounce, marking an impressive gain of more than 10%.
Looking further back, five years ago, the price of gold was around $1,300 per ounce. Clearly, it has made significant strides over the years.
James Rickards, a lawyer and investment banker, has been a long-time advocate of gold. He had previously forecasted that gold would reach $15,000 per ounce. Recently, however, he’s revised his prediction to an even more ambitious figure.
“My latest forecast is that gold may actually exceed $27,000,” Rickards wrote in a recent column. “I don’t say that to get attention or to shock people. It’s not a guess; it’s the result of rigorous analysis.”
The Analysis Behind the Prediction
To arrive at his price prediction, Rickards asked a straightforward question: “What’s the implied non-deflationary price of gold under a new gold standard?”
He explained that in a system where dollars are freely exchangeable for gold at a fixed price, an excessively high gold price would lead investors to sell gold for dollars and spend freely. Conversely, if the gold price is too low, investors would redeem dollars for gold and hoard the precious metal.
Rickards noted that the U.S. M1 money supply is $17.9 trillion and assumed that maintaining confidence would require a 40% gold backing. He pointed out that this percentage was the legal requirement for the U.S. Federal Reserve from 1913 to 1946.
By applying the 40% ratio to the $17.9 trillion money supply, Rickards calculated that the U.S. would need to hold $7.2 trillion worth of gold.
According to the World Gold Council, the U.S. holds 8,133 tonnes of gold reserves, equivalent to 261.5 million troy ounces. This leads to the final step in Rickards’ calculation.
“Applying the $7.2 trillion valuation to 261.5 million troy ounces yields a gold price of $27,533 per ounce,” he wrote.
A gold price of $27,533 per ounce would represent a staggering increase of more than 1,000% from the current levels.
Based on his analysis, Rickards offers straightforward advice: “The lesson for you as an investor is to buy gold now.”
If you share his optimism, here are three ways to add gold to your investment portfolio.
Buy Gold Bullion
The most direct way to invest in gold is by purchasing physical gold in the form of bars or coins. Gold bullion can be bought from reputable dealers and securely stored at home or in a safety deposit box.
The advantage of owning physical gold is its stability and tangibility, providing a sense of security and ownership that isn’t dependent on financial institutions. However, it requires secure storage and insurance, which can add to the overall cost of investment.
Invest in Gold Stocks or ETFs
Another way to gain exposure to gold is by purchasing shares of gold mining companies. When the price of gold rises, miners typically see increased profits, which can boost the value of their stocks.
Adding gold mining companies to your portfolio can provide diversification. However, it’s important to note that this approach also exposes investors to market risks and the performance of the underlying companies.
In addition, there are Exchange-Traded Funds (ETFs) that track the performance of gold. These ETFs aim to mirror the price movements of gold by holding physical gold or gold futures contracts.
Because gold ETFs trade on major stock exchanges, investors have the flexibility to buy or sell shares at market prices throughout the trading day. They offer a convenient way to gain exposure to gold without the need for physical storage or dealing with the logistics of buying and selling bullion.
Invest in a Gold IRA
Individual Retirement Accounts (IRAs) are a popular way to save for retirement, offering tax advantages that can help grow your savings over time.
Traditional IRAs allow you to contribute pre-tax income, with taxes deferred until you withdraw the funds during retirement. Roth IRAs involve contributions made with after-tax dollars, providing tax-free growth and tax-free withdrawals in retirement.
A gold IRA is a specific type of IRA that allows investors to include physical gold and other precious metals in their retirement savings. Gold IRAs are appealing because gold is often seen as a hedge against inflation and economic uncertainty, helping to protect your retirement savings from market volatility.
If you share Rickards’ bullish outlook on gold, a Gold IRA could be a valuable addition to your retirement strategy.
In conclusion, the potential for gold to reach unprecedented heights makes it an attractive investment opportunity. Whether you choose to invest in physical gold, gold stocks, ETFs, or a Gold IRA, there are multiple ways to add this precious metal to your portfolio. As always, it’s important to conduct thorough research and consider your individual financial goals and risk tolerance before making any investment decisions.
