Rickards’ 2018 Gold Outlook

Posted On Dec 21, 2017 By Dave Gonigam

  • Two years ago: A spookily accurate gold forecast in The 5
  • Now: “Good things come in threes”
  • The economy hasn’t been this strong in nearly four years
  • The rest of the story about falling U.S. life expectancy
  • A mailbag stuffed with taxing matters.

“Right now we’re witnessing a positive phenomenon in threes when it comes to gold and Fed monetary policy,” says Jim Rickards.

Yeah, we know. Gold. Boring. Old and busted. Sure, it’s up this year — but not as much as the stock market and certainly not as much as the new hotness of bitcoin.

Still, at $1,265 this morning gold is solidly above the depths it plumbed only 10 days ago. Let’s update a chart we brought you a week ago yesterday…

Three of a Kind

Ignore the sickening plunge in 2013 that dragged into late 2015. Focus instead on the bounce at the end of 2015… and another one at the end of 2016.

Last week we suggested a third bounce is in the making… and Jim’s in full agreement.

“It started back on Dec. 16, 2015, when the Fed raised interest rates for the first time in nine years,” he says. “This was the famous ‘liftoff’ that happened after the Fed had teased markets about a rate hike through all of 2015.

“Gold surged immediately after the rate hike, shooting up from $1,062 per ounce to $1,366 per ounce by July 8, 2016, a spectacular 29% rally and gold’s best six-month performance in decades.

“The Fed waited another year to raise interest rates on Dec. 14, 2016. Again the price of gold surged — from $1,128 per ounce to $1,346 per ounce last September, gaining 19% in a nine-month period.”

This year, eight days ago, the Fed raised interest rates for the third December in a row and — you guessed it — the price of gold floated from $1,240 to $1,258, a one-day gain of 1.5%.

Please indulge us a brief 5 flashback from two years ago.

On Dec. 11, 2015, The 5 featured a meeting of the minds between Jim Rickards and commodity investing legend Jim Rogers. Rogers described a phenomenon that Jim Rickards labels “the Rogers Retracement Rule.”

“By his reckoning,” Mr. Rickards explained, “gold formed a base at $200 per ounce in 1999. The 2011 high of $1,900 per ounce meant a gain of $1,700 per ounce over the base. A 50% retracement of that $1,700 move up meant that gold would hit a low of $1,050 per ounce.”

Here’s the chart we shared that day, updated to the present. We don’t want to say the two Jims “called the bottom”… but the Rogers Retracement Rule looks spot-on with two years’ hindsight…

The Rogers Retracement - Updated

Back to the present moment: “If good things come in threes, then this is the start of the third December rally in a row,” Jim forecasts, “and it could take gold back into the long-awaited $1,400 per ounce region.”

Indeed, “this new rally could go to $1,475 or higher by next summer. That would be a nearly 20% rally in six months, roughly comparable to the rallies after the December 2015 and December 2016 rate hikes.

“Some gold investors have been discouraged by the periodic drawdowns in the gold price,” Jim acknowledges, “including the November–December 2016 drawdown after Trump’s election. These same investors seem to have ignored the rallies, including the three strong ‘December Fed rallies.’”

The 5 has already gotten you up to speed on Jim’s outlook for bitcoin; suffice it to say he doesn’t believe uninterrupted growth in the crypto market is sustainable. Nor stocks, for that matter. “Meanwhile,” he says, “gold is in the early stages of a sustainable long-term bull market.”

Jim contends 2015 was the start of a bull cycle for gold that resembles gold’s extended rally from 1999–2011. Jim’s prediction: big gains for “the price of gold to $4,000 per ounce in the next few years and ultimately much higher.

“Right now we are in that sweet spot in the early stage of a long-term rally,” says Jim. “Now looks like a good time to jump onboard to enjoy the ride.”

[Ed. note: If you’re not that patient, Jim recently “declassified” a lucrative trading strategy that traces its origins to a CIA project in the early 2000s that aimed to detect financial precursors to terrorist attacks.

Jim was involved in this project from the get-go… but only now has he been able to make it available to retail investors. You can learn more about it right here.]

With tax reform nearly a done deal now, the major U.S. stock indexes are pushing into record territory.

At last check the Dow has pushed past the 24,800 mark. The Nasdaq is 17 points away from 7,000. The S&P 500 is 11 points shy of 2,700.

While gold clings to its recent gains, bitcoin is now firmly in a slump at $15,732. Of course, anyone who bought bitcoin before this month is still in the green, and not by a little…

Nothing Goes Up In a Straight Line

The big economic number of the day is the Commerce Department’s third and final guess at third-quarter GDP. It’s up an annualized 3.2% — a bit lower than the typical economist was expecting, but still not too shabby by the standards of the post-2008 era.

The less ballyhooed but more significant number today is the Chicago Fed National Activity Index, which crunches 85 economic indicators to get a big-picture view. The three-month moving average clocks in at 0.41. For context, only twice in the post-2008 era has the number been higher… May 2010 and April 2014…

Boom Phase

No doubt, we are in the boom phase of the boom-bust cycle. Even a “partial government shutdown” — which looms if Congress can’t pass a budget by midnight tomorrow night — probably can’t stop it.

Of course, not everyone is taking part in this boom phase… which brings us to the latest depressing news about life expectancy in these United States.

For the first time since the early 1960s, the figure has fallen two years in a row. The National Center for Health Statistics says all else being equal, a baby born in 2016 can expect to live 78.6 years — down from 78.9 two years earlier.

“For any individual, that’s not a whole lot,” says the agency’s Robert Anderson. “But when you’re talking about it in terms of a population, you’re talking about a significant number of potential lives that aren’t being lived.”

Mainstream headlines are playing up deaths in middle age from the opioid epidemic as if those are the sole cause of this drop. But for the last couple of years, we’ve been pointing to research from Princeton economists Angus Deaton and Anne Case that spotlight alcoholism and suicide as well. Among whites age 25–54 with no more than a high-school education, the death rate has nearly doubled this century.

Ms. Case theorizes that has something to do with the fact many people aren’t sharing in whatever the establishment defines as “prosperity” in the 21st century. “It may be the deaths from drugs, from suicide, from alcohol are related to the fact that people don’t have the stability and a hope for the future that they might have had in the past,” Case tells NPR.

But hey, falling life expectancy bodes well for Social Security’s finances, right?

Our long-standing thesis about “the awful way Social Security might be ‘saved’” hinges in part on falling life expectancy among the least-educated Americans. If they kick off before age 62, they’ll never collect a dime of Social Security benefits.

Meanwhile, more and more well-educated high-earning Americans are working well past “retirement age” — and still paying into the system.

Said The Economist in April 2014, “Well-educated baby boomers are putting off retirement while many less skilled younger people have dropped out of the workforce.” And now, nearly four years later, we know those “less skilled younger people” are dying in growing numbers.

Grim stuff, we know. We just wanted to add a little perspective to one of the day’s big headlines…

Once again, readers wish to weigh in on tax reform. Once again, we indulge them.

“I wasn’t as clear as I could have been,” writes a fellow following up from yesterday. “In your example, a $9,000 increase in taxable income at, say, a 22% marginal rate would generate additional taxes of $1,980, but this is more than offset by the $3,000 in extra child tax credits that they would get.

“When you consider additional factors like the massive change in income phase-out level for the child tax credit ($110K currently versus $500K in the new bill) and the reduction in marginal rates/brackets, the advantage grows all the more. I think your other reader was actually agreeing with me if I’m understanding him correctly.

“I absolutely agree with your point that the lack of spending cuts is a big problem, but let’s be real… spending cuts never happen. My opinion is that the economy will grow stronger than anticipated and these tax cuts will be pay for themselves 100% or close to it.

“One thing I know… I won’t be hiring that Miami CPA for anything!”

“The Miami CPA ought to get a better calculator,” writes another.

“A family of four gets four exemptions x $4,050 each — two of which are already offset by the increased standard deduction, the other two representing anywhere from $0 to $2,600 in tax savings, depending on income and tax bracket. The child credit is $5,000.

“And Rep. Jones resorts to hyperbole. The law adds a mere $1.46 trillion over 10 years, not $2 trillion. And we are not borrowing from China; they are investing their earned dollars in U.S. Treasuries, things you consider worthless. What a deal!”

The 5: We concede the point for these specific examples about the child tax credit. It seems the wonks on Capitol Hill managed to monkey with the numbers enough that, according to the Tax Policy Center, 80% of individual filers will experience some level of tax relief next year and “only” 5% will see an increase.

Meanwhile, if the tax cuts “pay for themselves” with economic growth, it’ll be the first time in the contemporary history of tax-cutting. It didn’t work out that way in the 1980s and it didn’t work out that way in the 2000s. The “Laffer curve” is an illusion. (That’s not to say letting people keep more of what they earn is a bad idea.)

“Dave, you are exactly right! These tax cuts come with no spending cuts,” writes one of our regulars. So the nation’s monstrous debt will only grow bigger.

“The whole Republican ‘tax plan’ was a pig in a poke, as you described it last month. Corporate America’s lobbyists lined up and got themselves some nice tax breaks. Go figure, their breaks seem to be permanent — but our individual credits/deductibles are going away. Plus, we’re still getting stuck with this ‘chained CPI’ nonsense.

“So it was more pork in and more sausage out. Ain’t it funny how that works in D.C.?

“This is the worst kind of bait-and-switch. The government’s profligate deficit-spending-and-inflating ways continue. So does the rearranging of deck chairs. The really sickening part is that future generations will pay for this.

“Love The 5!

The 5: Good point about how the changes to the individual tax code expire after 2025.

The Republicans did that, by the way, to stay within bogus 10-year deficit projections so they could avoid a filibuster in the Senate. They promise that future congresses would never allow the old system to come back.

Heh… Reminds us of the last major tax reform package under Reagan in 1986. A bunch of deductions went away in exchange for the top marginal tax rate being cut from 50% to 28%. That top 28% rate lasted all of three years. By 1993, Poppy Bush and Clinton between them had pushed it back up to 39.6%.

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. As long as we brought up Social Security today, have you heard of “the Social Security rebels”?

We’ve identified 12,649 of them around the nation. And you won’t believe what they’re doing. Not until you watch this. Once you do, you’ll want to join their ranks.


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