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Pierre Lassonde: gold is still the best investment, gold price could hit $10,000 in five years

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(Kitco News) - The next 30 years is going to see supply and demand fundamentals shift in favor of gold, and prices will push much higher to over $25,000 an ounce by 2049 when using historical average growth rates, this according to Pierre Lassonde, chairman of Franco-Nevada, in a recent webcast, joining Frank Holmes, CEO of U.S. Global Investors.

On a shorter time frame, gold prices in the next five years can hit anywhere between $2,500 and $10,000 an ounce, if historical equities to gold ratios are applied to current levels, as historically, the Dow Jones to gold ratio hit one to one during times of peak gold prices.

“Today, we’re at 22 to one (Dow to gold ratio). So, I look at the next five years and [the ratio] could be anywhere from two to seven, and I look at the 22 to one, where would the one to one [ratio] be? Well, that’s $25,000 to $27,000 today. Where would two to one be? Well, that’s $12,500. And were would five to one be? Well, that’s $5,000,” he said. “Those numbers are not that crazy.”

Fueling the growth in gold prices is tailwinds from three fundamental game changers, Lassonde said: protracted central bank buying, the emerging popularity of gold ETFs, and a shift of physical demand from the West to the East.

Since 1989, the central banks around the world have evolved from net sellers of gold to net buyers in 2018, Lassonde said.

“The central banks have gone from selling over 400 tonnes of gold per year to buying over 600 tonnes of gold per year. If you add that up, that’s a thousand tonnes of gold in a 4,000 tonne market. That’s huge, that’s 25%. That’s enormous influence on the gold market,” he said.

He added that the composition of central banks involved has also changed from predominantly western European central banks in the late 1980’s to now central banks from emerging economies, like China and Russia.

“When central banks are buying, you want to be buying with them,” Lassonde added.

Gold ETF holdings have climbed from zero in 2003 to over 2,500 tonnes in 2019, according to data from the World Gold Council.

Lassonde noted that investors, especially in Europe, prefer gold-backed ETFs that provide a positive returns over other safe haven assets in Europe, like treasury bonds, that right now pay a negative interst rate.

On physical gold demand, Lassonde pointed out that the primary consumer of the bullion are no longer western countries, and are now replaced by China and India.

“China and India in 1989 were 10% of the overall demand for gold. Look at it today: 53%. Over half the gold today goes to two countries, India and China,” he said. “I guess you should all know the golden rule, which is that he who has the gold, makes the rules.”

Frank Holmes added that both of the primary drivers of physical gold demand, the love trade and the fear trade will be in the yellow metal’s favor.

The love trade refers to demand driven by gold jewelry, and Holmes noted that 60% of global gold demand is “love,” where Indian women wear six times the gold than what’s stored in Fort Knox, and the gross domestic product (GDP) per capita in both China and India, “Chindia” continues to rise, he said.

The second driver, the fear trade, refers to the imbalance between fiscal and monetary policies, and the bigger the imbalance, the better it is for gold prices, Holmes said.

“There’s a big imbalance between fiscal policies and monetary policies, and the world seems to be using monetary policies to stimulate the economy,” he said.

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