Gold could hit $10,000 an ounce in the coming decade, as the commodities bull market is far from over while the fate of the dollar and U.S. stocks looks doubtful, says David Skarica, editor of the Gold Stock Adviser newsletter and author of "The Great Super Cycle."
There is just too much money in circulation right now thanks to the Federal Reserve's money-printing campaign, while stock prices have settled into a range after a long rally.
"I think the Dow is in a long-term trading range, so if you're looking at the Dow at roughly 13,000 right now and in 1980 when the gold price topped, the ratio got down to about 1.2 to 1, so if you had the same ratio gold would actually go to $10,000 or $11,000 an ounce," Skarica tells Newsmax.TV.
Silver and gold prices have cooled a bit recently, although investors should note that profit-taking always occurs in any bull market and doesn't signify an end to longer-term trends.
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"I think people overreact because there is nothing wrong with taking profits in a bull market," Skarica says.
"It's prudent to lock in on those gains, so I don't see why people just jumped out of the window because of that."
Investors should rather look at gold like they did with stocks in the early 1990s, as a correction one year didn't mean the end of the world but rather, was followed by several years of gains.
"Right now, I think we're in a correction phase for commodities. I equate the 2008 bust in commodities to the 1987 crash in stocks. After '87 we saw a three-year rally and after 1990, the Dow Jones had a 20 percent correction before continuing its bull market in the 1990s. So I think this year we could see at 10 percent to 15 percent and maybe a 20 percent drop in the value of a lot of commodities, consolidate there and get ready for another move higher through the 2010s."
Or, as Skarica illustrates, just compare it to American football.
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That means stocks are going to hang out in the doldrums for the next several years.
"We are in a long-term bear market, meaning that if you look at the past 10 years, the S&P 500 has been in a long-term trading range, and I expect that to continue for the next five to 10 years," Skarica says.
Yes stocks have rallied in the past couple of years, but that rally is short-lived and doesn't indicate a more lasting change in the market cycles.
The good news for stocks: there won't be blood.
"I don't think we have that much left in this rally. Now I don't actually think that we are going to see a bust like in 2008 going forward, but I think again we are going to be in this trading range of between 1,000 and 1,500 in the S&P, so I don't think stocks have that much upside here in the next year or so."
One thing guiding markets this day are inflation rates, or at least expectations that inflation is on the way.
Federal Reserve officials have said spikes in oil and other prices are transitory and aren't likely going to affect underlying inflation rates soon, although they'll keep a close eye on inflation.
Yet quantitative easing, the Fed's stimulus programs under which money is printed and used to buy government debt from banks in order to fuel more economic activity will send consumer prices climbing, Skarica says.
"You cannot devalue the currency and print as much money as they have and buy their own bonds without some negative effects, and the negative effects, as we have seen, have been rising commodity prices and a falling dollar," Skarica says.
"So I think we'll start to see inflation really escalate in the coming years, and then we'll add fuel to the fire, as I think we're going to see somewhat of a sovereign debt crisis like what is happening in some of the European nations happen in the U.S. at some point within the next three to five years."
Inflation rates are climbing, hitting a two-and-a-half-year high spurred by higher gasoline and food prices.
The Consumer Price Index rose 0.4 percent in April from March, according to the Labor Department.
The increase, in line with economists' expectations, took the year-on-year inflation reading to 3.2 percent, the highest since October 2008, Reuters reports.
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Stripping out volatile food and energy costs, core CPI rose only 0.2 percent from March.
"The report raises no red flags for the Fed of an unruly inflationary dynamic taking hold," says Julia Coronado, North America chief economist at BNP Paribas in New York, according to Reuters.
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