Predicting the Future Gold Price Misses the Point

“Gold bugs” routinely solicit my prediction regarding the future gold price, assuming I must be an “educated” gold bug since my hedge fund happens to maintain large gold exposure.

I loathe the question, because a typical gold bug will not “hear” my response, instead waiting for me to validate their speculative fantasies with the prospect of dollar signs and five-figure gold. Will gold rise to $2000/oz? $10,000/oz?

Where is the gold price headed?  It depends on the variable.

-In what time period? The next week? Month? Year? Ten years?

-Compared to what? Dollars? Euros? Real estate? Gummi bears?

Of course, nearly everyone wants a prediction in dollars, which is highly humorous and paradoxical because the purported destruction of the dollar is a primary reason to own gold in the first place. What victory is there if the dollar value declines 50% and the gold price doubles?

This is where I think investors need to make a distinction between “nominal” inflation and deflation and “real” inflation and deflation.  (Defining terms: Nominal inflation and deflation is an increase or decrease in the money supply, respectively. “Real” inflation or deflation is an increase or decrease in purchasing power in gold terms.)

Nominally, I feel like my predictions are as good as the next guy’s. However, I believe deflation in “real” terms is one of the highest finance probability themes over the next three to five years. In other words, goods will become cheaper compared to gold despite what happens to the dollar

via Predicting the Future Gold Price Misses the Point.

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