The Case for $20,000 Gold

Dear Reader,

This is Dylan Jovine with Behind the Markets.

Happy Friday.

Today is Friday, August 7th.

TGIF.

Let's finish the week talking about gold.

Specifically, gold at $20,000.

Now I know how that sounds.

But stay with me.

What's Driving Gold Right Now

Gold was up 4.3% on Wednesday — the third largest single-day gain of the year.

A lot of folks are calling the bottom in.

There are both short-term and long-term forces at work here.

In the short term, $5,000 to $6,000 gold over the next six to twelve months.

In the long term — and this is where it gets interesting — there's a credible case for $20,000.

Let me walk you through it.

The three structural forces driving gold haven't changed.

First, the Fed.

Since the financial crisis, markets have believed the Fed would never have the stomach to really raise rates.

They'd just run the economy hot forever.

That was always going to be inflationary.

Second, interest rates and debt.

The bond market ultimately sets interest rates — not the Fed.

And the more debt we issue, the higher the rate the market demands to absorb it.

We have a lot of debt.

Third, central bank buying.

Foreign central banks and sovereign wealth funds have been moving out of US dollar-denominated assets and into gold.

This started accelerating during Trump's first term — $7.4 trillion in new debt.

It continued under Biden — another $7.2 trillion.

And it got worse when Biden froze Russian central bank assets, which was considered a serious breach of the unwritten rules of global finance.

Now we're in Trump's second term, tracking toward another $8 trillion in new debt.

Central banks looked at all of that and made a decision.

We're not buying US treasuries anymore.

We're buying gold.

The result?

Gold has surpassed the US dollar as a reserve currency asset for the first time in 40 years.

That is a sad thing to say about this country.

But it's true.

The Record That Just Got Broken

The World Gold Council just reported that central banks and sovereign wealth funds bought a net 289 metric tons of gold in the second quarter.

A record.

Up 62% from the same period last year.

That's not a trend anymore.

That's an avalanche.

The $20,000 Case

Kevin Smith of Crescat Capital just put out a note that I want to share with you.

He sees gold surging to $20,000 over the next four years.

His words: "With the precious metal now under accumulation by global central banks, extending the trend line points to a price target for gold of $20,000 in approximately four years — although we suspect global M2 could accelerate given the current fiscal imbalances and geopolitical climate to shorten this timeline."

He lays out two scenarios.

The first is straightforward.

Central banks and sovereign wealth funds keep accumulating gold at the current pace.

The US keeps running massive deficits.

Politicians from both parties — and I want to be clear, both parties are equally guilty here — keep spending money we don't have.

Supply and demand does the rest.

$20,000 gold in three to four years.

The second scenario is more dramatic.

It assumes a 50% stock market decline and a substantial dollar devaluation.

Now before you dismiss that — think about what has happened in prior bubbles.

After the dot-com crash, the S&P 500 fell 50.4%.

After the global financial crisis, it fell 57.4%.

Each time, gold soared.

Smith is simply saying: if the AI bubble follows the same pattern as its predecessors, gold could get to $20,000 that way too.

Combined with a gold-to-S&P ratio model that is still well below its 1980 peak, the math actually works.

Is it a long shot?

A little.

Is it absurd?

Not really.

We get a serious market crash roughly every 4.8 years on average.

We are not immune to that pattern just because AI is exciting.

The Bottom Line

If you believe the US government — presidents, senators, congressmen from both parties — is going to get its fiscal house in order in the next four years, ignore everything I just said.

If you think politicians are going to keep being politicians, $20,000 gold looks very, very realistic.

So what do you do with all of this?

The story isn't just about gold going higher.

It's about Washington actively choosing a miner.

For the first time in American history, the federal government has committed nearly $3 billion to a single American gold project — the only new reserve-scale gold mine built in this country in a generation.

The war department's name is in the filings.

John Paulson — the man who made $15 billion shorting the housing market — has spent a decade quietly buying this one tiny stock and now holds close to a billion dollars of it.

I put all the important details about this little-known company in my breakthrough report.

Read: America's #1 Gold Stock Here.

Have a wonderful weekend.

I'll see you Monday.

“The Buck Stops Here,”