We've already seen gold climb more than 8% since the United Kingdom voted to leave the European Union on June 23. And our newest gold price prediction shows the precious metal climbing much higher from here…
In fact, Money Morning Resource Specialist Peter Krauth's new gold price prediction shows gains of over 260% in the next three and a half years.
That will put the price of gold near $5,000 per ounce by 2020…
Krauth's gold price prediction is bold, but not unwarranted. There are three simple catalysts that will drive gold prices to $5,000 by 2020.
Let's take a look at these three catalysts now…
Gold Price Prediction Catalyst No. 1: Global Economic Uncertainty
Economic uncertainty – especially on the global scale – is great for gold prices.
And the economic uncertainty we're seeing now should continue for years.
The June 23 Brexit vote has caused panic about the stability of the global economy. Questions are being raised like, who are the next countries to drop out of the EU? Many are even wondering whether the EU will collapse in a few years….
This geopolitical tension, along with exploding debt-to-GDP ratios, makes gold extremely attractive as a safe haven.
Free Premium Content: Why Now Is the Best Time to Buy Gold in Five Years
At the end of the Q1 2015, the Eurozone debt/GDP ratio grew to 92.9%. That was its highest level ever. Expect this debt/GDP ratio to grow even more as the UK exits the EU over the next two years. That's because the UK was a big contributor to Eurozone bailout efforts in the past. With its absence, it'll create even more strain in the already tenuous economic pact.
Another development shaking the global economy is plummeting bond yields. The 10-year and 30-year U.S. treasury yields just dropped to 1.38% and 2.12% on July 6, respectively. These are near all-time lows. And the Eurozone isn't faring much better. More and more bonds are slipping into low or negative territory thanks to easy-money policies from the European Central Bank (ECB). For example, Germany's 10-year is at -0.18%, and France's is at 0.13%.
Low bond yields may make investors look to gold as an alternative long-term investment.
Gold Price Prediction Catalyst No. 2: More Rate Cuts
There's already talk of fresh stimulus and easing measures in the United Kingdom since Brexit. On June 30, Bank of England Governor Mark Carney said that new stimulus efforts could help mitigate economic headwinds from Brexit.
And over in the United States, the chances of a rate cut were just raised from 0% to 10%. That puts the odds of a rate cut higher than a rate hike in 2016, according to Krauth. A lot of traders are actually predicting a 20% probability of a Fed rate cut at a meeting later this year and in early 2017, according to Krauth. That was unheard of just a few weeks ago.
Rate cuts often lower the value of currencies, which makes gold look more attractive as a store of value. With the ECB unlikely to raise rates any time in the near future, expect low and sub-zero rates across the world to fuel gold's surge to $5,000 per ounce.
And our third catalyst for gold prices is by far the most important. Because it shows how the window for buying gold at these prices will quickly close…
Gold Price Prediction Catalyst No. 3: Gold Is Trading at a Discount
Gold is trading at steep discount right now, based upon one of Krauth's favorite technical indicators.
One of the best technical indicators to valuate gold, Krauth says, is the Dow/gold ratio. It's a simple indicator that can be used by dividing the Dow index by the price of gold.
The ratio tells you how many ounces of gold are required to buy the Dow. And the indicator last peaked around August 1999, when it reached 42. Based upon this estimate, gold is trading at a steep discount given its current ratio of 13.3.
In the next several years, however, Krauth expects gold to be trading at a much larger premium. So the discount won't last as gold buying accelerates.
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