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If history repeats itself, gold prices headed to $4,000 in three years - Frank Holmes

Kitco News

Gold prices have seen a positive correlation to the expansion of the Federal Reserve’s assets, and as the Fed embarks on the largest stimulus program in its history, the yellow metal is set rally in the same fashion as in the aftermath of the last recession, said Frank Holmes, CEO of U.S. Global Investors.

“In the next three years, if we look back, if [history] repeats itself, from 2008, 2009 to 2011, that three year run saw gold go from a $750 - $800 range up to $1,900. If we forecast that because we have the same expansion of the balance sheet of the Fed then it would project, if cycles are exactly the same, gold could go to $4,000,” Holmes said.

Holmes noted that although trillions of dollars have already been injected into the monetary system this year through the Fed’s quantitative easing program, more stimulus is still on its way.

“This is going to cost the U.S. government approximately $10 trillion in fiscal and monetary policy to get the economy back, so I think that number you’re seeing after 2008, 2009 after Lehman Bros. went bankrupt, you saw the balance sheet expand from $1 trillion to $3 trillion. I think it’s got to hit the overall $10 trillion,” he said.

What’s different this time is the policies toward trade from global leaders.

“Prior to 2008, 2009, we went on an incredible run from 2001 up to that date, and that date was when the G20 finance ministers and government agencies around the world were all pro-trade, pro-growth. Ever since the crisis of 2009, it’s all about synchronized taxation and regulation, and now it’s synchronized money printing, monetary, fiscal stimulus that we’ve never seen,” he said.

When Alan Greenspan was Chair of the Federal Reserve, the balance sheet of the central bank was about 6% of gross domestic product (GDP). Today, that number stands near 33% of GDP, Holmes noted.

“And this is how much money that [Fed Chair Jerome] Powell has to to throw at this because of the coronavirus and the synchronized shutdown of the world. This is unprecedented. So, I think hard assets trade higher,” he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.