Is Rich Dad right about $15,000 gold?

Posted on 25 July 2009 with no comments from readers

Rich Dad is a publishing phenomenon that most investment analysts prefer to ignore. But his common sense advice on how to manage personal finance has become a best-seller. Therefore, when he comments on a new trend then it is worth paying attention.

Now he is saying gold could hit $15,000 in a huge price spike. Well, he spotted the US housing market bubble before it happened, and helped millions to cash in before that market crashed.

Gold fundamentals

What perhaps the professional analysts dislike about Rich Dad, apart from his enormous success, is that he just manages to jump on the right bandwagon at the right time for what seem obvious reasons. So has he got it right on gold? Let me repeat the argument I made a few months ago:

‘The fundamental case for investment in precious metals has become overpowering. Global bank bailout and stimulus packages have resulted in a huge increase in global money supply that has never had any effect except inflation in all history.

The gold supply by contrast is relatively fixed and production is actually falling. Supply is even tighter for silver – where stock levels are a hundredth of gold – and that is reason enough to expect the established pattern of silver outperforming gold will be repeated again.

As investors rotate their assets out of stocks and into alternative asset classes the best returns are therefore likely in precious metals, and such information tends to be self-fulfilling.

There are all sorts of minor trends supporting this basic trend, and like any true bull market there will be a compounding of supporting evidence: from a shortage of gold available for bank leasing to UK Prime Minister Gordon Brown’s call for IMF sales, often seen as a contrary indicator as his previous calls boosted gold prices.’

However, where Rich Dad has put the cat among the pigeons is the figure of $15,000 an ounce, a more than 15-fold increase in gold prices from current levels.

It is the same this time

He might have just looked at the late 1970s and the inflationary crisis that followed the 1974 stock market crash. Gold rose eight-fold. Then you could simply think, well it is worse this time, and double the increase for the present recession/depression.

That is the sort of simple investment logic that professional analysts hate. It makes their work redundant and questions the time they spend in concocting theories. But it does not necessarily make it a wrong conclusion.

That the doyenne of the mass investor has come to that conclusion and is pumping it out to his fan club is very significant, and Rich Dad became rich by getting his timing right.