$7,000 Gold? Here’s the Rational Case

Gold soaring to $7,000 an ounce?  Even in today’s bullish gold environment such a prediction sounds outlandish. Yet the person making this forecast is not kidding. And, by the way, he’s not some pundit trying to generate headlines. 

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Charlie Morris, head of Multi-Asset Investments at London-based Atlantic House Investments says gold can hit $7,370 an ounce by 2030. Morris, who manages Atlantic House’s Total Return Fund, says there’s a “rational case” for his forecast based upon three factors: inflation, real interest rates, and a premium for gold. 

“Gold has a unique ability to sniff out inflation,” Morris argues in an article for the London Bullion Market Association. He says the recent rise in gold indicates inflation will jump next year. “As the world economy re-emerges from the ashes, we could find ourselves facing a supply shock, with too much money chasing too few goods,” he says. Morris anticipates an average inflation rate of 4 percent for the decade.

Even with inflation rising and the economy recovering from the coronavirus shutdown, Morris expects real interest rates to remain unchanged. (The real interest rate is the cost of money after factoring out inflation, an inflation-adjusted rate.) That means rates would be close to zero, a positive for gold since the precious metal does not offer a yield to investors.

Morris’ final factor, a premium for gold, is currently 24 percent above what he considers fair value. In 2011, the last time gold soared, its premium reached 50 percent. Morris’ calculations assume the premium remains near current levels, at 21 percent. 

Given that premium and his expectations for inflation and real interest rates, Morris arrives at a price of $7,370 per ounce of gold in ten years. 

“There is a rational framework from which you can understand the dynamics of the gold market,” Morris concludes. “Owning gold does not mean you have to fly blind.”

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