Gold to $10,000 'Sooner Than People Expect': Jim Rickards

When you go from $3,000 to $4,000, that's a 33% increase. That's a heavy lift. But when you go from $9,000 to $10,000, that's only an 11% increase. Hello, and welcome to GoldSilver. I'm Maggie Lake. Joining me today to discuss the macroeconomic outlook and what it means for gold and precious metals is Jim Rickards, editor of Strategic Intelligence and author of Money GPT. Hi, Jim. It's wonderful to see you. Hi, Maggie. Great to be with you. No shortage of things to talk about. Let's sort of dive in a bit if we can. You've been very vocal about the potential for gold to go to $10,000. Do you still feel like that is the runway? And what's your timeline for that? Yeah, no, I definitely feel it's headed that way. And sooner than later, sooner than most people expect, you can give a five-year, 10-year forecast. It'll get there eventually. But that doesn't mean very much for investor allocations today. So my time horizon would be, if not late this year, mid-2027, whether it's three months or six months, it will get there sooner than people expect. But when you make a statement like that or a forecast like that, I obviously need to back it up. So I would- Of course. I would point to a few things. One, the fundamentals for gold have not changed. In other words, gold was at $5,400 an ounce last January. It then drew down to about $3,900 an ounce was the bottom. I actually wrote an article in, it was about May, using some analysis that I learned from Jim Rogers years ago, 10, 12 years ago. He was probably the greatest, well, still around, of course, but the greatest commodity trader of all time. And I took something that we talked about, because gold went down 50% from 2011 to 2015, using a $250 an ounce base from 1999. And what Jim said to me, he goes, no commodity goes to the moon without a 50% drawdown along the way. So he was not overly troubled by that. He said, if you can't deal with that, you're in the wrong market. You're in the wrong commodity. It's just how it goes. And he said that to me around 2012, when gold was off the top. The top was August 2011. It hit $1,900. That was the then all-time high. And using his methodology, I calculated a bottom of $1,070 an ounce. The actual bottom was $1,050 an ounce in December 2015. In other words, he absolutely stuck the landing within 20 bucks on a 50% drawdown. So all I did was take that methodology, which was rigorous, and apply it to the current situation. And I said, the bottom is going to be, my estimate was about $3,600. You can be a little higher or lower, depending on what base you choose. And that's admittedly a little bit arbitrary. But it was $3,900. So obviously, it was a little bit higher than the base. But I felt confident that there was a bottom somewhere in that zip code that it was going to take off from there. And that seems to be what's happening. So those are the, I'm not really a technical analyst, but that's not exactly technical analysis. It's just historic behavior that you can apply and update using fractal mathematics. So looking at where we are now, when I say the fundamentals haven't changed, central banks are still net buyers. They just are. Particularly China, but many others, Kazakhstan, Vietnam, Mexico, Philippines, Turkey has been a large buyer, and others. Number two, mining output is flat. It's not going down, but it's flat. It's around 4,600 tons per year, up and down a little bit, but hasn't moved much off that. So when you have a situation where demand is strong, particularly from the central banks, and supply is flat, that's a recipe for higher gold prices. I'm not saying peak gold or we'll never find another ounce of gold. I actually invest in a few gold mines. But I know how difficult it is. It is getting more difficult to find really rich veins of ore. They're just, as I say, deeper and further and fewer and further between. So solid demand from the central banks. Central banks themselves will not send gold skyrocketing. What they do is they're a very savvy buyer. They put a floor under it, at least a soft floor, maybe a little bit harder than that. They see a dip. They buy it. They don't want to pay up. And if you think about it, take China, for example. China's a major buyer. If you're a buyer, you don't want high prices. You actually like low prices, because you get more for your money. So China's not in a mode where they want to take actions to drive the price a lot higher, because they're still acquiring gold. Now, they're non-transparent about it. They don't tell you exactly what they're buying. They do have a publicly announced reserve figure of about 3,000 metric tons. But that's probably only half of the gold they have. No one knows for sure, because they have a lot of off-the-books gold. The People's Bank of China has, again, 3,000 metric tons, up from 600, by the way, in 2009. But they have another entity called the State Administration on Foreign Exchange, SAFE, or SAFE. They are non-transparent. They're very sophisticated participants in foreign exchange and gold and other markets. How much gold do they have? We can sort of tease it out a little bit from Swiss exports to Hong Kong, Hong Kong imports, what goes into China. It's a little harder to sort how much is private demand versus government demand. But it seems reasonable to assume that they might have as much as twice as much gold as they announced. In other words, something like 6,000 tons, closing in on the United States, by the way, which is 8,133 metric tons. So the central bank buying is there. Mining output is flat. The geopolitical vectors are worse, meaning there's more uncertainty. The war in the Middle East is spreading. It's not just Iran versus the US anymore. You've got Yemen. You've got the Houthis. You've got some disruption. Iraq has been participating. Iraq just blew up the Saudi pipeline. The Strait of Hormuz is closed. Some oil is getting through, but not a lot. But Saudi had this cross-peninsula pipeline that ran out to the Red Sea. They were getting about 3 million barrels a day through that, give or take, versus 20 that they were doing before. But the Iraqi proxies for Iran blew up the pipeline. And then the Houthis, who are another proxy for Iran, just ran wild on the coast of Yemen, along the Red Sea and the Balboa Mandeb Strait. They captured an island in the middle of the Strait. So they now really control the Red Sea. And if you control the Red Sea, you control the Suez Canal, because that's where the Red Sea goes. And then Ukraine, people haven't been following that as much because they're focused on Iran, or the war is four years old. The Black Sea is closed. The Russians have bombarded Odessa, which is the major Ukrainian port. Ukraine is the breadbasket of Europe. That's been their nickname. They're a major grain producer. That grain is not getting out. So you're going to have higher grain prices, which adds to the inflation. So you look around. Everything about inflation, oil, Strait of Hormuz, the Red Sea, the Black Sea, the port of Odessa, grain exports, oil exports, helium exports, which you need for semiconductor production, all these things, they all have large geopolitical and economic consequences, but they all point in the direction of inflation. So you have a central bank net buying, mining output flat, inflation rising, Fed interest rate hikes. Tell me what they do about inflation. They don't. That's another myth. What is the Fed raising? The target rate for Fed funds, which is an overnight market that barely exists because the banks have excess reserves. The Fed funds market is where you borrow reserves from another bank, but they have trillions of dollars of excess reserves. The system's flooded with reserves. So that market scarcely exists. They raise interest rates one quarter, 1% on a market that doesn't exist. And somehow that's supposed to affect the price of oil. Of course not. So all these things point in the direction of higher gold prices. And one last thing, Maggie, and this is, I like to keep the math at the fifth grade level. You usually don't need much more than that. But this is something that psychologically is a little bit counterintuitive for a lot of people. So you look at gold going from, say, $3,000 an ounce to $4,000 an ounce. That took a while. $4,000 to $5,000, that was a little faster, but that took a while. But there's a psychological phenomenon called anchoring. And anchoring is when we just get an idea in our heads, we anchor to it, and then we begin to filter everything we see through that one idea. So let's say I have 50 ounces of gold, and it goes up $1,000 an ounce. Well, I made $50,000. And it goes up another $1,000 an ounce, I made another $50,000. And that's true. But people tend to anchor on the $1,000 step, let's call it, and the 50 ounces in my example. But each $1,000 increment is easier than the one because you're working off a higher base, and it's a smaller percentage gain. So when you go from $3,000 to $4,000, that's a 33% increase. That's a heavy lift. But when you go from $9,000 to $10,000, that's only an 11% increase. That's like a couple of weeks trading, the way the volatility is today. So my point is, people say, oh, it took forever to go from $3,000 to $4,000 and $4,000 to $5,000. We'll never get to $10,000. But the truth is, when you get to $6,000 or $7,000, it'll go $8,000, $9,000, $10,000 really quickly. So this is very, very important because one of the things that I'm thinking about, and I'm glad you laid out the whole scenario because we want to think about the headwinds and tailwinds that could get us there. And one of the questions I had when I saw your forecast is, I talked to people who are bullish gold and agree with many of the fundamentals that you talked about. I talk to them a lot. Very few of them have a $10,000 target. It's much more conservative. So I was wondering what you see that they don't. And it sounds like part of the difference is that you see this anchoring as something that's fundamentally different right now. And will it be an accelerant to the price? That's right. Again, it's very simple, which is the dollar amounts are constant, but the percentage gains get smaller, which means they're easier because you're working off a higher base. And for that matter, let's get to $10,000 first, and we'll do another interview. But when you go from $20,000 to $21,000, that's only like a 4% or 5% increase. In other words, those $1,000 bumps get much easier as you get to higher levels. And so that's- That's why we hockey stick on these parabolic moves, right? That's exactly right. If you want to be rigorous, you'd show the chart logarithmically, and then that would be a less steep gain. It's just a different way of presenting it. But given what people- they focus on the dollar amount. And as I say, it gets a lot easier as you get closer to $10,000. That's so interesting. So let's talk about some of these factors. But it's important for people to know that because it explains time horizon. And I think for a lot of people, and we'll talk, that they're sitting at this point where they're trying to figure out what to do. So some of the fundamentals that you laid out, I feel like we're kind of in a world where we're trying to figure out if old correlations make sense or things are nuanced. And so you could- there's like two sides of the argument and which has the weight that will impact price. So when you talk about the Federal Reserve, you're worried, it sounds like, that they're ineffectual right now. And new Fed chairs always get tested. So I'm curious to see what you think of Warsh. But one quarter point move is not going to change inflation. Traditionally, higher rates are a problem for gold, right? If you see that, then that tends to at least cap the price. Not so this time. Does the inflation concern? Is that where we should be focusing our minds? Yes. Because people talk about high rates, low rates, or whatever, but they seldom distinguish between nominal rates and real rates. So, OK, the real rate for Fed funds, at least, which is kind of, like I say, kind of irrelevant. I mean, if you want to look at a relevant interest rate, look at the yield to maturity on a 10-year Treasury note. That's a big deal. By the way, it has nothing to do with the Fed. That's established by the market. I don't know if the bond vigilantes have settled it up or not. But institutional players, sovereign wealth funds, large leveraged hedge funds, bank dealers, et cetera, they're the ones who determine the yield to maturity on a 10-year Treasury note. But that is not a proxy. That's kind of a benchmark for a whole bunch of other rates, mortgage rates, which typical mortgages, seven-year maturity. You can get a 30-year mortgage, but people tend to move after six or seven years. So it's kind of viewed as a seven-year weighted average maturity. Corporate bonds, often five to 10 years, construction loans, and so forth. So the 10-year Treasury is a more important benchmark, and it's a better indicator of commercial lending, corporate bonds, and mortgage lending. The Fed has nothing to do with that. But my point is, you have to take the nominal rate and subtract the inflation to get to the real rate. So the Fed raised the Fed fund's rate to 4%. OK, that's their target rate. But inflation is 3.5. So the real rate is kind of positive 1.5. It's still positive. But I've been around. I remember when the yield to maturity on the 30-year Treasury bond was 15%. Got to go back in the Wayback Machine to remember that, right? Well, yeah. Well, it was 1980. I mean, it was a while ago. But the Yankees won the World Series. Reggie Jackson was Mr. October. We were having a good time in New York. But my point is, I got my first mortgage. My wife and I bought a condo, and our mortgage was 13%. And I called my mother, and she cried because her first mortgage was 2.5% in the 1950s. I said, but Mom, yeah, we're paying 13%, but inflation is 15%. So the real rate is negative 2. And I was in a 50% tax bracket in New York, and it was tax deductible. So I got another 7.5 points back in terms of the tax deduction. I said, so my real rate is negative 8. Negative 8. The bank's paying me to borrow. I'd be foolish not to. But again, it's not calculus, but a lot of counterintuitive. Right. And a lot of it's beneath the headline, right? You got to do a little bit of that math beneath the headline. Correct. So interest rates are still positive with a five-year yield to maturity and a 10-year treasury note in a world of 3.5% inflation, maybe a little higher. That's still positive 1, 1.5%. But let's see what happens with inflation, because real rates are not 5%. They're 1.5% using a 10-year note proxy. And so that's what gold is competing with. Remember, gold hit an all-time high at the time, January 1980, $800 an ounce, up from $35 an ounce. That was a 2,300% gain in nine years. But that hit that all-time high when interest rates, as I say, were 13%, 14%. So high nominal rates don't tell you the story. You have to look at real rates. And they are important. I'm not dismissing the importance of rates relative to gold and as a headwind for gold. But it's that real rate. And that answers the question about, oh, well, if I can get 4.5% or 4% on a two-year, why would I buy gold? You were saying you have to look at the real rate, and you have to look at your purchasing power, I'm assuming. That's what's inherent in that. Right. You're only getting 50 basis points real on a two-year Treasury note because it's 3.5% inflation. And coming back to what we talked about at the beginning, that Ukraine, grain, oil, Iran, et cetera, the inflation is not going away. It's going to get worse. So you and you don't believe the Fed has a plan to get that under control. You don't seem to have a lot of confidence in Warsh. I don't think they can. I don't think it's their- well, it's not their job. Well, I'm sorry. It is their job. It's their mandate, but the tools they have don't address it. Is that what you're- That's correct. Here's the thing with inflation. In the simplest terms, prices are going up, and the prices are in an index, and you calculate it. All right, there's some statistical finesse around it. But it basically means prices are going up. But there are three distinct sources of inflation. One of them is from the supply side. You have a supply-side disruption. That's what we're seeing right now with oil. We're going to see with grain and other critical inputs, strategic metals and chemicals, et cetera. So that's what we're seeing. And that's called cost-push inflation. The other one is called demand-pull inflation. And what that means, that's psychological. That's behavioral. The Fed can't affect that. So if people have higher inflation expectations, and they start to adapt or change their behaviors, say, hey, I was thinking of buying a new refrigerator. I better buy it today because the price is going to be up in six months. You pull the demand forward to beat the price increase that you expect. Well, that feeds on itself. It increases the velocity of money. That can actually cause- your fear of inflation can cause inflation because of your behavior pulling demand forward. The third source is fiscal policy. This is basically government deficits. So a large, mature economy like the United States has a real growth constraint. It's not hard science, but it's about 3.5%. The only time the US economy is going to grow faster than that, if you're coming out of a recession, and you have a lot of slack in the labor market or industrial capacity, okay, for a short period of time, maybe you can grow at four plus. But normally, 3.5%. Well, if you're growing about that- and we're not, by the way. We're a little bit below that. But if you jam a lot of government spending into an economy that's operating close to capacity, you just get inflation. There's nowhere else for the money to go. And that's one of the situations we're facing right now. Monetary policy has almost no impact on inflation, but fiscal policy does. That's why in June 2022, inflation was 9.1%. That was the highest in 40 years, since the 1980s. Why was that? Well, that was because of Biden and his COVID legislation. Trump pushed through basically a trillion-dollar handout, gave everybody checks. I got one. My kids got one. So Trump did that trillion dollars to stimulate the economy. But my point is, leaving the policies aside, a trillion dollars by Trump and $2 trillion by Biden and Pelosi jammed into 2021 and 2022. That's where the inflation came from, that 2022 inflation, which lingered on into 2023. Now, that was pretty much behind us. They didn't have any more increases in the deficit or special appropriations through 2024. But we do now in 2026 because of the Ukraine. And their tax cuts in there. I mean, listen, fiscal spending is the one thing that both parties agree on in the US, I think we can say. It's a very popular policy. Well, you're exactly right, Maggie. But it's also one of the causes of inflation. So we've got a supply side disruption. Now, supply side disruption by itself tends to extinguish itself. And what I mean, the old cliche, the cure for high oil prices is high oil prices. But oil, this has to be refined products. We're talking about gasoline and diesel in particular. The demand is what we call inelastic, meaning you may not like the price, but you have to buy it no matter what. You got to put gas in your car, take your kids to school, go to work, go shopping, whatever it is. Truckers got a truck. They got to put that diesel in regardless of what the price is. But what happens is you reduce your spending somewhere else. If I have to put gas in my tank and it costs $70 to fill up instead of $50, well, that money is coming out of something else. I'm not going to go out to dinner, skip a vacation. Discretionary spending, et cetera. So it does slow the economy even if you're buying just as much gas as the pump. And that will tend to reduce prices. Now, it's not good. It increases unemployment. Businesses shut down. It puts the economy into a recession. I'm not saying that's a good outcome. I am saying that cures the inflation. So what Walsh did was very disappointing. I know where the board was. But by raising interest rates, the inflation coming from the higher gas and diesel, oil prices generally, which affects the price of everything because it's the price of transportation, diesel in particular, that was going to work its way through and slow the economy on its own. By throwing in another interest rate hike, you probably set us up for a worse recession. And we saw this in 1990. An even better example was 1974. The 74-75 recession was the worst since the Great Depression at the time. We've had worse recessions since then, but that was the worst of the time. I graduated from college in 1973, and I didn't have any useful skills, so I went to graduate school. But all my friends went to work on Wall Street. And New York in the 70s are partying, having a good time. Well, we saw everyone gathered at Christmas in 1974, and they were all fired. They were all unemployed because we had a market crash and a recession, but that was driven by higher oil prices. Oil prices quadrupled in that time period, going back to the 73 war and the Arab oil embargo. But what happened in October 1974? President Gerald Ford and Alan Greenspan, who at the time, he was not chairman of the Fed. He was the head of the Council of Economic Advisers. They had win buttons, W-I-N, which is whip inflation now, and they were handing them out. And they were in an anti-inflation campaign as we were about to collapse into the greatest recession since the Great Depression. So that's an even better example than 1990, although I was talking to Peter Navarro this morning. 1990 was another good example, where oil prices will take care of themselves, and they'll slow inflation by themselves. But when you start raising interest rates or worrying about inflation that's coming from the supply side, you're going to overdo it. And so I think what the Fed did yesterday was a blunder. So it's so interesting, because if you game that out, it sounds like you're very concerned with these supply-stock-led prices that headed for a U.S. slowdown, recession, maybe a severe one, that will resolve the inflation problem? Yeah. So what does that mean for gold? Well, interest rates will come back down. So we talked about the inflation will come down. Interest rates will come down.