WHY HARRY DENT’S $400 FORECAST FOR GOLD IS WRONG…. Price Is Heading Up Much Higher

Harry Dent has been making the rounds suggesting that for gold to get back to its pre-bubble price, it would need to fall to $400 or $450.  If we were to believe Mr. Dent, then it would be bad news for gold investors.  However, Harry Dent’s gold price forecast is quite faulty because he fails to consider the most critical factor.

Harry Dent has become well-known on the internet for his $750 gold price forecast.  He bases a low gold price upon what he calls “The end of the Commodity Super-Cycle.”  Dent sees nothing but massive deflation ahead. Thus this will cause the gold price to fall along with all commodities.

Unfortunately for Dent, his gold price forecast is incorrect because he fails to incorporate the Falling EROI (Energy Returned On Investment) and energy into his analysis.  Dent, like many in the financial industry, believes in the “Energy Tooth Fairy” (a term coined by Louis Arnoux).  What I mean by the Energy Tooth Fairy is the notion that economy will continue to grow forever because plenty of cheap energy will always be available.  Thus, economic and business cycles, forecasted by Dent, will also continue forever.

Before I explain in detail why Dent is totally wrong on his $400 gold price forecast, here he is in a recent interview on Kitco:

Dent makes several forecasts in the interview, but his price target for gold is the most startling for precious metals investors.    He says gold is heading for $650-$750, but that is just the first target.  Dent then says, “Ultimately for gold to erase its bubble and get back to its bubble origin, it would be $400-$450.  Once gold hits $400 or $450, then Dent would be a buyer.

I gather Dent is suggesting that gold became a bubble in 2004 when it went above $400 an ounce:

As we can see in the chart above, the gold price never fell below $1,050 since the 2008 Financial Meltdown.  Is Harry Dent suggesting that the gold price will drop another $600 from its low of $1,050 in 2015??

I imagine Dent arrives at his $400 gold price forecast from using the Eliot Wave Theory of technical analysis.  While technical analysis is an excellent tool to forecast price, it doesn’t incorporate the changing energy dynamic that controls the price of most goods, commodities, metals, energy, and services.  Which means, Harry Dent is forecasting in a vacuum, or without the most crucial component… ENERGY.

For example, does Dent realize the cost of gold production has skyrocketed since 2004?  The following chart shows the top four gold miners estimated total cost versus the gold market price:

In 2004, the top four gold miners (Barrick, Newmont, AngloGold & Goldcorp) average estimated total production cost was $340 an ounce based on an average $396 realized price.  I calculate the estimated total production cost by using the net income or adjusted income as a percentage of total revenues.  Thus, the average profit margin for the top gold miners in 2004 was 16%.

Now, compare that to an estimated production cost of $1,146 in 2017 while the group received $1,260 an ounce for selling their gold.  The top four gold miners average margin of profit in 2017 was approximately 10%.  So, the gold miners aren’t getting rich producing the King Monetary metal.

Again, how can Dent forecast a pre-bubble $400 gold price, if the average total production cost is nearly three times higher?

Dent’s failure to understand how energy is impacting the gold price (and everything else) will come back to bite him hard in the future.  If the gold price fell back to $400, that would utterly destroy the gold mining industry.  I haven’t seen one gold mine profitable at a price anywhere near $400-$450.

Of course, this doesn’t change the fact that analysts such as Dent will continue to make short-sighted and incorrect forecasts because they haven’t taken into account the vital ENERGY COMPONENT.

Now, if we take a very conservative approach at the gold mining industry’s basic cost of production, the price is still more than double than Dent’s $400 price:

The gold mining companies now put out a new financial metric called the AISC – “All-In-Sustaining Cost.”  However, this does not include all costs and is not a realistic figure for the gold mining industry to survive for long.  Regardless, the average $890 All-In-Sustaining Cost that the top four gold miners reported is still 122% more than Dent’s $400 low price.

Furthermore, the gold mining industry’s costs are rising a great deal more in percentage terms than the oil price.  For example, let’s take a look at the change in oil price and the top four gold miners total production cost:

2004 oil price = $38.26

2017 oil price = $54.13

2004-2017 oil increase = 41%

2004 gold cost = $340

2017 gold cost =$1,146

2004-2017 gold cost increase = 237%

While the oil price has increased by 41% since 2004, the top four gold miners total production cost has increased by 237%.  How can the gold price be in a bubble if it costs 237% more to produce it today than it did in 2004??  Does Dent believe really believe that the Eliot Wave Theory or supply and demand forces are the only indicators of the price??

The next chart shows the total production cost from Barrick and Newmont versus the gold market price:

As we can see, the gold market price was never below Barrick and Newmont’s total production cost.  If gold was ever in a small bubble, then it may have been a bit frothy in 2012 when the average spot price was $1,669 versus a $1,272 average cost for Barrick and Newmont.

If we are going to utilize “supply & demand” forces in determining price, then more demand in 2012, pushed the gold price nearly $400 above Barrick and Newmont’s total production cost.  Analysts need to realize that supply and demand move the price of goods, commodities, metals, and energy above or below their cost of production trend line.  However, the gold mining industry continues to sell gold for more than its total cost.  And, I believe this has been true for quite some time.

Now, if we want to spot a real bubble, let’s compare the Gold Chart with the Dow Jones Chart:

If we take the most conservative technical analysis for gold using the 200 Month Moving Average (MMA), it’s $975 (Red Line).  Thus, the current gold price is 33% above its 200 MMA.  However, the Dow Jones Index is 90% above its 200 MMA:

Now, I am not saying that the gold price will fall to its 200 MMA of $975, but to claim that gold is going to its pre-bubble price of $400 in 2004 is preposterous when we understand the tremendous production cost increase to produce the shiny yellow metal.

While Dent believes most assets will decline during the next big deflation, he argues that the safe place to be is in cash or U.S. Treasuries.  While it may be a good idea to hold some cash during a meltdown, U.S. Treasuries, especially the 30-Year Bond, are going to be toast when the world experiences a “Seneca Cliff” decline in U.S. and global oil production.  Without cheap and abundant oil, all the debts will implode in the future.

We must remember, U.S. Treasuries are not assets per say, they are obligations or debts to be paid in the future.  Because Dent does not understand how the Falling EROI of oil is destroying the global economy, he can claim that gold will go to $400.

However, as debts and assets disintegrate in the future, the safe assets to own will be the precious metals.  Thus, gold will hold (or increase significantly) its value versus the majority of assets.

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44 Comments on "WHY HARRY DENT’S $400 FORECAST FOR GOLD IS WRONG…. Price Is Heading Up Much Higher"

  1. Right on Steve, Thank you!

    • Numerous “scientists” are paid to produce reasearch supporting the interests of some business or political lobbys. The same applies to analysts. One has to be very careful while reading their books and reports. If you want to profit from your professional career you have to suport the system. Having said that one has to admit that the doomsayers have been wrong for the lat 10 years and sponsored researchers and analysts have been right in that there was no collapse of the markets.

  2. DisappearingCulture | June 11, 2018 at 4:19 pm |

    “U.S. Treasuries, especially the 30-Year Bond, are going to be toast when the world experiences a “Seneca Cliff” decline in U.S. and global oil production.”

    When U.S. bonds are toast…better have your survival supplies, cause it will get ugly fast. That is the last bastion or safe haven for 99% of investors.

  3. Did Dent say where the DOW would be sitting if gold hit’s $400? I suppose silver would be back to $5 too? Everyone agrees gold “Used” to be money but people are just too smart now I suppose. If PM keeps moving to Asia, gold should be darn rare in the USA before long if you can’t afford to dig it.

  4. Paul D Anders | June 11, 2018 at 7:18 pm |

    Okay, I do get the energy side of things, but now that you mention the stats, just why did production costs skyrocket when oil only went up by 41%? The argument of “it’s all about energy” doesn’t seem to make sense.

    • DisappearingCulture | June 12, 2018 at 5:51 am |

      Declining ore grades is one of the answers. Another is increase in other costs too; equipment, labor, insurance, legal, and on and on.

    • Paul D Anders,

      While the price of oil has only increased by 41% compared to 2004, it was up much higher 2011-2014. Thus, a lot of capital that went into gold mines was impacted by the higher oil price in the past.

      Also, the Average Ore Grade of the Gold Mining Industry has fallen roughly 50% over the past two decades. Thus, a lot more ore has to be moved to produce the same gold. Which means, it cost a great deal more to produce gold today than in 2004. If we go back to producing gold at $400, I would imagine maybe 5-10% at most would be profitable at that price.

      steve

  5. Joe Lindell | June 11, 2018 at 8:10 pm |

    Your are absolutely correct Steve in your analysis. Harry Dent is a Jackass that sells his newsletter of gloom and doom. It’s like saying the end is coming. On a bell curve, a certain percentage will pay for the forecast. Dent thrives on this marketing gimmick. He has been forecasting doom these past 7 years that I’ve heard about him. And we are still here.

  6. Billy Lone Bear | June 11, 2018 at 8:44 pm |

    Dent is making a low downside asymmetrical bet. Here’s how it works. There are countless people who believe gold will go to the moon. Some think it might only double or triple. Some think it may only rise to $1500. There are a couple who believe it will fall to about $1100. But there is virtually nobody predicting a gold price that will fall temporarily below $800.

    If he gets it right he’ll gain a lot of respect. If he doesn’t people will probably forget about it and later he can still come back on the scene and give additional wrong economic predictions.

  7. A few points. In a deflationary environment the banking/financial system would collapse taking the dollar down with it. Gold actually thrives in an deflationary environment. The world seems to be making preparations for a post dollar world with gold playing a more important role. Finally Dent is a complete and utter idiot.

  8. Michael Kohlhaas | June 12, 2018 at 1:16 am |

    Harry Dent is a frigging idiot!!!

    • According to Harry Dent, in the coming global market crash Federal Reserve Note will be the safest asset. He advised people to sell their real estates, stocks and precious metals, and hold FRN on until the global market recovers.

  9. This guy has lost his mind, We have already hit the lows in both Gold/Silver markets. This is just my opinion? I see both Gold/Silver markets to take off. The eastern countries will be far ahead of the game. Lets just hope the United States still have all the gold in Fort Knox they say we still have? This is the biggest concern, If the most Ignorant, Corrupt POTUS. Obama didn’t spend it all in plastic surgery getting his ass rebuilt from big Mike oil drilling. I see gold at around the $5,000 a oz mark and Silver $80-100 a oz. #TRUMP2020

  10. DisappearingCulture | June 12, 2018 at 6:02 am |

    No fiat currency in the history of all of them has been a long-term store of purchasing power. Define long term one might ask? $100 cash doesn’t buy what $100 cash bought one year ago let alone 5, 10, etc. So while holding some cash is good [I have a bag of quarters even…they work in vending machines], Dent is saying get out of stocks etc. to get a box full of $20 bills?? Of is he saying that equivalent in digits should be in a TBTF banking institution? I’m not interested enough to listen to his take on the world. Some just enjoy being a contrarian…fool…or village idiot.

  11. John Barclay | June 12, 2018 at 7:20 am |

    The price of gold is determined by paper markets
    If holders of paper contacts realise there is no gold backing the paper, they may sell paper to buy physical gold.
    The paper price would fall (to $400?)
    Physical gold would not be obtainable

    • John Barclay,

      All prices are based on paper markets. However, the gold price is also based on its cost of production, as are most commodities, metals, and energy prices. If it costs $1,100 to produce gold, then I can assure you, if the price fell to $1,000, or even lower, traders would be buying it hand over fist.

      steve

  12. Something everyone’s missing is that the gold price is priced in dollars. If the dollar were to strengthen to the point that gold could be $400, every emerging economy and foreign company who borrowed in dollars would be obliterated; not to mention the US debt & Federal Reserve balance sheets would completely implode too.
    Dollar devaluation & wars against the enemies of Saudi Arabian oil to distract us all is where we’re headed.
    Sorry, Yemen.

    • Paul D Anders | June 12, 2018 at 12:01 pm |

      I had the same thoughts but I also think that gold would become so scarce from the rich snatching it up that it would never get close to $400.

    • DisappearingCulture | June 12, 2018 at 5:39 pm |

      “If the dollar were to strengthen to the point that gold could be $400,….”

      The dollar index could go to historical highs, and that would not significantly lower the exploration, mining & refining costs of gold. We are already talking about the cost in dollars; makes little difference in the exchange rate internationally.

  13. Mikkalainen | June 12, 2018 at 12:31 pm |

    Hi Steve,
    If world’s economy implodes and bonds, stocks, real estates etc. collapses, why gold price can’t go down considerably and be below production cost for a long periot ? In such a situation wages, energy, equipments etc. goes down, so that production costs do the same. Why gold production can’t go also down very much or to nil, when people have much more important issues to meet ? What for gold production is at all needed in such a desperate situation ?

    • Mikkalainen,

      You bring up a valid point. However, we must remember, there is very little invested in gold at the moment… maybe $3 trillion. Now, compare that to the total Global Assets worth $400 trillion. If just $1 or $2 trillion left STOCKS, BONDS & REAL ESTATE and went into gold, that would push the price up at least double.

      Now, as for the GREAT DEFLATION to take down all prices… yes, but the problem is when that happens, costs of individual goods go up. Why? Because the economic principle of ECONOMIES OF SCALE goes the other way as oil production declines. Thus, it will cost more to produce things in the future. Blue Jeans that cost $20 today, will cost a great deal more as the economies of scale goes into reverse.

      We must remember, cheap oil allowed the production of millions of widgets to fall in price, but that will reverse as oil production heads south. More stuff will be produced by hand, and not by robots the Techno Gurus believe.

      steve

      • Goldilocks | June 13, 2018 at 1:38 am |

        Hi Steve,

        Assuming that the paper gold price deflates in proportion to the 400 trillion in global assets, I could see gold price going down to Dent’s price forcasts.

        That said it’s hard to say if you could buy physical on the open market as an individual/small investor.

        I guess the other point of gold price based on the mining cost doesn’t factor in that approximately 190k tons of gold has ever been mined and still available to be sold on the market. (Regardless of the cost of mining new gold)

        As a result wouldn’t it be possible nations/investors liquidate reserves if they need to cover debt obligations if the credit bubble bursts?

        In such a scenario gold would drop in price for the short term while physical is still available to purchase as a small investor/individual.

        Anyhow, this is just a small thought experiment to convey that gold as a hedge has benefits, but gold as your main / bulk of your investment isn’t without risk of seeing further downside. (Especially since financial markets are rigged in the large banks favor)

  14. Arnold Ziffel | June 12, 2018 at 4:12 pm |

    One possible scenario for the dollar is countries holding dollar reserves get together and value any new dollars issued by America at say; 75%. This would bifurcate the dollar and protect their reserves which would become the new dollar for global trading. America would see hyperinflation overnight.

    Another great article Steve!

    • If FRN gets hyperinflated, all other currencies will follow. All of them are the derivatives of FRN. They have a value only because FRN still has some value.

  15. TPTB are hyper inflating their chosen assets. Gold is currently “trading” just above the cost of mining. Gold is in NO WAY going to
    $400. That is laughable, stupid, ignorant….dare I say more?

  16. Anyone who buys physical gold and silver and does not know how to hedge on the futures market is gambling.
    You are buying something that is a long only which rolling the dice. You can’t set a stop on physical.
    Gold and silver that is not hedged is an insurance not an investment.
    They are like a life raft on a yacht. You hope to hell you don’t have to use it. But you would be stupid not to own it.

  17. Hard to say…
    As a Neophyte Elliotician following the charts I came up with a $600 price for gold on The FIB Retracement. Interesting because it’s well below Barrick’s cost of production. Is this how SHTF? An unstoppable force meets and immovable object?

  18. The price of platinum is very much below cost of production. How is that possible then? Why couldn’t this happen to gold and silver also?

  19. Cost of production may create a floor for commodities but supply and demand dictates the ceiling.

    • olegig,

      I would rather put it this way. Cost of Production determines the PRICE FLOOR, but Supply & Demand forces will pull it above or below that Cost of Production trendline.

      steve

    • And/or;

      The ability to look through the ‘Fogs of Fiat’ determines the outcome. Probably on a personal level.

      Adapt or die.

  20. What Steve and Gail Tverberg have been saying:

    “The UN does not take into account that the injection of energy into human life, at present volumes, cannot possibly continue into the coming years. Therefore, the world’s population shall have to diminish at the pace at which the production of oil diminishes.

    The fall in the amount of energy injected into human life will have the effect of reducing the world’s population, just as the previous growth of energy input produced the growth of human population. The inevitable conclusion is that the years from here to 2100 will prove to be catastrophic for humanity.”

    https://kingworldnews.com/multi-billionaire-hugo-salinas-price-this-will-be-catastrophic-for-humanity/

    • Michael Ruppert in his movie “Collapse” also said that human population would nose dive when oil production went in the same direction and that’s when he considered himself optimistic, lol.

  21. DOOD!
    Hugo Salinas Price just gave you props! I’ve always thought you had a better grasp than most of the others (especially Dent). After the HSP hat tip, you’ll really have alt web street creds. Good on ya.

  22. jinglejangles | June 13, 2018 at 8:12 pm |

    In defense of Dent, there are many debts that need to be serviced by a constant flow of cash. Additionally, debt defaults represent a destruction of (a type of) money. He argues that the debt hole hasn’t been filled despite all the money printing. A decline in debt means a decline in currency chasing goods and services, and this is deflationary. Gold could decline to the levels that Dent talks about. However, I wouldn’t bet the ranch on it.

    • Ah, but therein lies the rub…with the destruction of debt will come the tsunami of dollars. In fact gold will be rising rapidly way before this happens.

  23. ManAboutDallas | July 7, 2018 at 9:07 pm |

    It’s astonishing that Dent – who CLAIMS to use “demographics” in his analytical work – doesn’t notice the BIGGEST demographic “Elephant In The Room” of all : China and India and their exponentially-increasing middle classes, BOTH said middle-classes acquiring ( thereby creating DEMAND for ) ever-increasing quantities of : GOLD. For the Chinese, it is cultural; for Indians, BOTH cultural and religious. Taken together, they’re a Golden Freight Train that’s going to leave Mr. Dent a grease spot on the tracks. Say “Good night!”, Mr. Dent. And good riddance.

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