Let’s face it. Mainstream media and large financial institutions have the (bad) habit of forecasting gold prices based on market sentiment. In a bear market, they lower their forecasts. If gold prices are rising, their forecasts are in line with the rising trend.

That is an easy call because a trend continuation is a much higher probability event than a trend reversal. Also, it is in line with expectations of people, so the message is easier ‘accepted’ by readers.

Right now, gold sentiment is ultra-bearish, so the predictions are all crushing for precious metals. Here is one example: “Deutsche Bank says gold’s fair value is $US 750 an ounce.” The article appeared on, and argues that “gold would need to fall towards $US750 per ounce to bring prices in real terms back towards long-run historical averages.”  Deutsche Bank calculated the gold price through several models to determine “fair value” for the precious metal. The Deutsche “gold price model” factors in world growth, the US dollar, money supply and central bank gold purchases.

Deutsche Bank continues by saying that falling oil prices could support the price of gold. Cheap oil reduces inflationary pressure in the US, eases the need for the Federal Reserve to raise interest rates, and therefore puts downward pressure on gold’s main competitor, the US dollar. We would view the falling oil price as the most likely catalyst to provide support to the gold price.”

Do you want more gloom and doom? No problem, here is the “gold is going to $350” forecast. A  recent paper by Claude Erb, “The Golden Dilemma”, posits a fair price for gold of around $800, amazingly close to my $750 target after adjusting for 10 years of inflation.

Let’s shortly reflect on this. It is interesting that Deutsche Bank takes crude oil into account, as our view on the markets is based on gold and crude oil functioning as a gaugefor financial markets. Let us explain.

“Oil is oil, and gold is gold.” Both assets will always have a value, and their price is mostly determined by the world around them. In the 50’s, you could buy a barrel of crude oil for some 2 USD. Today, the same barrel costs 25 times more, but all other goods and services are also much, much more expensive. That is why crude oil is also an inflation gauge.

From a secular point of view, crude oil has gone through 3 phases in the last 80 years. Between WWII and 1970, its price per barrel was between 2 and 4 USD. Between 1970 and 2004, crude traded between 10 and 40 USD; it peaked in 1980 at exactly 39.50 USD. Since 2005, crude has risen to its ‘next level’ as it peaked around 120 USD, and corrected recently around the 43ish level.

Now read that last sentence again. Crude oil bottomed in 2015 around the same price level as it peaked in 1980 (difference is some 10%), which is 35 years later.

Gold has gone through a similar secular path. It peaked in 1980 at 850 USD, and went to a higher ‘level’ in 2007. It is now some 20% above its 1980 peak.

Does it make sense, from the point of view that crude oil and gold act as gauges for the financial system, that both assets will trade in a ‘lower level range’, the one in which they traded in the 70ies? Not at all, unless there is a mega-deflationary bust.

That is why we believe that gold is near a bottom. There is some downside, but it is limited … unless the world is about to undergo the ugliest deflationary bust in modern history, which seems unlikely with central planners in the (monetary) drivers seats.