© R.H. Tamlyn, Jr. May 5, 2023

Many in the gold community often say, no one wants to live in a world where gold is…pick a number. $5,000? $10,000? $25,000? $50,000? $100,000? And if gold shoots up tomorrow to pretty much any of those numbers, they’re likely correct. It’s not difficult to imagine a Mad Max type of chaotic world overnight where paper currency is rejected and everyone suddenly has to learn how to barter.

But the reality is, I can forecast with almost complete certainty that gold will eventually hit $100,000 an ounce. Does that sound outrageous? Probably to most. But most have on current day glasses through which they view the world.

In reality, $100,000 gold at some point in the future is no different than if you’d told a person in 1933 or so, when gold was REVALUED to $35 an ounce, that it would someday be $2,000 an ounce. That statement to that person then, in that world, would be no more outrageous than forecasting $100,000 gold to someone living today.

After all, $2,000 gold today is only 57 times the $35 an ounce it was in 1933 after Franklin Roosevelt devalued it from $20. So, for simplicity, if gold were to again go up 57 times, from $2,000 an ounce, we get to a price of $114,285. Will it take 90 years to do so? Well, of course that’s the great question, but the price of $114,000 from $2,000 is only compounding at an annual rate of 4.5% for 90 years. This seems completely possible when you break it down like that, doesn’t it? Does to me.

I’m not even trying to make the argument to own gold, even though I do. I’m simply showing that any investment compounded over many years is going to produce numbers that are shocking to someone thinking in terms of today’s world.

Another example. I grew up with four brothers and my mom and dad in a very modest “G.I.” house in Bellaire, Texas. Dad fought in World War II, was wounded at Iwo Jima and received a purple heart, and was sent back to America to recover. Like so many after the end of the war, he bought a house in what were termed G.I. neighborhoods at the time. 1100 square feet for about $11,000. The mortgage was $75 a month. And I remember when the taxes went up and payment went to $77 a month my parents didn’t think they were going to be able to make the payment! (It was a different world…monetarily speaking.)

Today is also a different world, monetarily speaking, and as in so many cities that have grown dramatically, the house we grew up in has been torn down and a new modern house rebuilt on that same land. These homes are typically million dollar or multi million dollar homes. But there are still some of the original homes in that neighborhood, and you can currently buy the land for $400,000 and upwards. The zip code of that neighborhood is 77401 if you want to do a Zillow or Redfin search or something to verify this.

So, the $11,000 house with land that my parents bought at the end of WWII is now selling for $400,000 and higher just for the land. Or around 40 times, just for the land. So that’s just another example of an asset that has risen dramatically over time to numbers that would stagger the person who bought the asset at the original price. In this case that’s over about 80 years, so the compounded rate of return is almost identical, or 4.5% per year.

Where I live in Dallas near SMU is also a 90 year old home. I don’t have the value these homes originally sold at, but I’m guessing $15,000. Today the lots in our area sell for around $1.4 million, just for the land. Sounds incredible if you bought at $15,000, right? But over 90 years it only represents about a 5% annual compounded return.

I’m not going to bother with doing something similar for stock market returns, as many have done that. Studies showing compounded returns of 7-8% over many years can certainly be found in the financial press. Which if you compare to the gold and real estate examples above, looks favorable. And perhaps they are. And all of these examples carry risk—gold, real estate, and stocks.

I’m simply showing in this brief article that numbers that sound outrageous in today’s world actually don’t seem so outrageous when you show the effect of compounding an investment over many years. So don’t be surprised if gold one day hits $100,000 an ounce.

Now, should gold hit $100,000 an ounce in a few short years, it’s another story entirely. Truly a Mad Max type of world, in all probability. So no one wants that- a world where gold is suddenly $100,000 an ounce. But if such a world were to come, I’d want to own as many ounces as I could possibly stomach.