How to Predict the Price of Gold
Last week, I wrote about investing in bitcoin or gold.
In short, my answer was yes.
I like them. Both of them.
Per the feedback I received, it appears that makes me unique. For many, it’s one or the other.
This confounds me!
Many crypto believers say that bitcoin is better than gold.
I am not here to opine on that. “Better” is a subjective word that doesn’t really have a place in investing.
If I can make money on something — even if it may not be perfect — giddyup.
More to the point: So what?
Who cares if bitcoin is better than gold?
Gold has a miniscule market, but it’ll still make you money. If your objective is to be “better,” go join a debate club.
Let’s be real. If you believe in crypto and you’re trying to steal market share from gold, it’s a start.
But you’re doing yourself a disservice. I recommend setting your sights on a larger target.
As I told you last week, both crypto believers and gold bugs benefit from the weakness of the U.S. dollar. Taking market share from dollar holders is a much more lucrative idea than targeting gold bugs.
So, how do we predict where bitcoin and gold are going?
Well, bitcoin is super volatile. I expect it will be higher in a year.
But tomorrow? Next week? That’s tougher to say.
With gold, however, the answer is much easier…
It Shouldn’t Be This Easy
Just follow the rates…
(Source: Bloomberg, internal calculations.)
…but not just any rates.
You have to follow real rates.
In the above chart, the blue “10Y” line reflects the yield on 10-year Federal Reserve Treasurys, adjusted for inflation.
That last part is the most important. When you adjust interest rates for inflation, you get the real interest rate.
This rate will tell you if it makes sense for you to hold on to cash for investment purposes.
Today, the real interest rate is negative. That means when you leave your money in the bank, it is becoming less valuable. Inflation is eroding more interest than you can earn.
That’s precisely why it makes sense to own assets such as gold … and bitcoin too. They maintain their purchasing power.
And in the case of gold, you can predict where its price is going by following one simple number.
The gold price and real interest rates move opposite each other. Over the past 18 years, the correlation between these two has been -0.9.
That’s significant. Two assets that move exactly opposite each other have a correlation of -1.
When real rates fall, gold rises. And vice versa.
This is a strong inverse relationship over nearly two decades.
What Does That Mean for Gold Today?
Recently, real rates have been rising. They’ve become less negative.
If this continues, the price of gold will fall.
But if that happens, I expect the fall will be short-lived.
Over a longer time frame, I believe gold (and bitcoin) will continue to rise.
The Fed and other global central banks say there are no plans to stop printing money.
And Fed Chairman Jerome Powell’s stated goal for this money printing is more inflation. As you’ve seen, inflation makes real rates go more negative.
That makes the answer easy.
Bitcoin or gold? Yes!
Editor, Profit Line
P.S. I alluded to the fact that the volatility of cryptos makes their prices tough to predict. I highly recommend you rely on an expert for this … at least until you get your feet wet in the space.
My personal crypto guide is my colleague Ian King. He is a crypto expert who’s been in the space for years.
Whether you are a crypto newbie or a long-term believer, Ian will help you. I strongly encourage you to check out his Next Wave Crypto Fortunes.
Ian’s guidance in this service has helped increase the value of my crypto portfolio. And from the feedback we’ve received, I’m not alone.
If you want to be more educated and more confident, you should click on this link to learn more. I assure you, you’ll be happy you did.