How long will this gold bull market last? We may be experiencing a 20-year gold bull market (2019-2039)

This is the third part of the "Gold Research Trilogy"; the second part, The Law of Gold Price Fluctuations , has three main conclusions.

First, gold and virtual currencies have broken away from the monetary system, allowing for diversification of risks associated with the monetary system. Gold is one of the few assets that has both broken away from the monetary system and gained widespread "consensus." Although Bitcoin has also broken away from the monetary system, the "consensus" it has achieved is far less widespread than that of gold. We are fairly certain that gold will remain an indispensable means of "wealth storage" in the future.

Second, strong currencies are the foundation of the global monetary system. When the status of a strong currency is weakened by certain factors, a gold bull market emerges; when the market anticipates that this factor will dissipate, the gold bull market ends.

Third, this gold bull market has two driving forces: concerns about the rapid growth of US debt, and the "rise of China" challenging the status of the US dollar.

The first question this article will discuss is: How long will this gold bull market last? The author believes that gold will experience an ultra-long bull market, lasting up to 20 years (2019-2039).

The previous gold bull market peaked in 2011, after which gold prices began to fall. Although gold prices bottomed out in 2015, there was no significant increase in gold prices from 2015 to 2017, so it is generally believed that this gold bull market began in 2018 or 2019. This article chooses 2019 as the starting point of the bull market.

This gold bull market can be divided into two phases. In the first phase, the driving force behind the rise of gold is the market's concern about the US public debt problem. In the second phase, the driving force behind the rise of gold is the challenge posed by China's rise to the status of the US dollar. A deep correction may occur between the two phases. Let's look at the first phase first.

The First Phase of the Gold Bull Market (2019-2029)

The United States currently urgently needs to address the problem of excessively high and rapidly growing public debt.

Figure 1 shows that since 2014, the US "fiscal deficit rate" (fiscal deficit rate = federal fiscal deficit / US GDP) has hovered at a low level, but it broke through 4% in 2018, exceeded 4.5% in 2019, reached 14.7% in 2020, and 12.1% in 2021, showing slight improvement in 2022. However, the "fiscal deficit rate" began to rise again in 2023 and 2024. In order to control the debt level, the "fiscal deficit rate" must be kept below 4%.

As long as there is no sign of a solution to the debt problem, the gold bull market will remain in the first phase. To solve the debt problem, the United States must do two things: first, control debt interest payments; second, maintain steady growth in tax revenue.

However, in the short term, there is often a conflict between the first point and the second point. For example, an economic recession can lead to lower interest rates, thereby reducing US debt interest payments, but during a recession, tax revenue cannot maintain steady growth.

The author believes that through a combination of various policies, the United States can still achieve the goal of "controlling the growth rate of debt." The specific policy combination adopted by the United States is unknown to the author. But solutions exist, such as the seemingly feasible plan given here. This plan needs to be implemented in two steps.

First, the United States uses policy adjustments to cause a global economic recession. When the world enters a recession, the safe-haven value of US long-term government bonds will rise. Taking advantage of the recession, the United States can issue a large number of low-interest long-term government bonds. Currently, the face interest rate of 30-year US Treasury bonds is about 4.5% (Figure 2). If the United States can suppress the interest rate of 30-year Treasury bonds to below 2%, then by replacing high-interest bonds in the existing stock with newly issued low-interest long-term bonds, the US interest payments will decrease significantly.

During this process, due to the economic recession, gold will still be in a bull market. However, it is not ruled out that in the early stages of the recession, due to tight liquidity, gold may fall in the short term. This situation of tight liquidity in the early stages of a recession leading to a fall in gold prices occurred in 2008.

Second, when the replacement of low-interest long-term government bonds for high-interest government bonds is basically completed, the United States promotes global economic recovery through a combination of policies. At this time, tax revenue will rise with the economic recovery. Due to the increase in tax revenue and the significant decrease in interest payments, the growth rate of public debt is controlled. Under ideal conditions, the overall scale of US public debt may even decrease.

When the global economy begins to warm up, the first phase of this gold bull market will end.

If the world enters a recession in 2026, the United States can use 2027-2028 to issue low-interest long-term government bonds. The world economy begins to recover in 2029, and gold enters a temporary bear market. Then the first phase of the gold bull market will be from 2019 to 2029. After that, gold prices will significantly correct until the gold bull market enters the second phase.

The Second Phase of the Gold Bull Market

The driving force behind the second phase of the gold bull market is China's rise, which will challenge the status of the US dollar. When the US dollar's status as an international reserve currency begins to waver, the value of gold will rise. As discussed in "The Law of Gold Price Fluctuations," gold is a means of wealth storage outside the monetary system and can effectively hedge against systemic risks within the monetary system.

So, what is the catalyst for China's rise? From the current perspective, the next round of global economic recovery will be driven by AI and robotics technology, which may be China's opportunity.

The impact of this technological revolution is enormous. Regardless of AI technology's ability to improve efficiency in various industries, household robots alone can drive demand in the hundreds of billions of yuan. Of course, current humanoid robots are still similar to toys and do not play much of a role.

But new things should be viewed with a developmental perspective.

Imagine that with technological advancements, if a robot costing hundreds of thousands of yuan can complete many tasks in the home, including cooking, cleaning, helping children with homework, and monitoring family health, then the global demand may reach hundreds of millions of units. At the same time, in order to cooperate with the work of robots, various facilities in the home need to be updated. Large-scale updates in the furniture, home appliances, clothing, and automobile industries will create huge demand.

Currently, China has a gap with the United States in key technologies for AI and robots, but this gap is not insurmountable. Due to China's engineer dividend and low-cost advantages, the gap between China and the United States is expected to continue to narrow. When the United States feels China's catching up, friction between China and the United States will further escalate.

China's rise will challenge the US dollar, prompting gold to enter the second phase of the bull market. The rivalry between China and the United States will not end in a short period of time, and may take several years or even more than a decade.

If the global economy recovers in 2029 after a recession and consolidates its recovery momentum in 2030-2031, then the strategic competition between China and the United States may enter a white-hot stage in 2032. From 2029 to 2032, gold will experience a temporary bear market.

If the Sino-US strategic game continues for seven years, and the situation becomes clearer by 2039, the gold market will officially enter a bear market cycle. Looking back at this gold bull market, it began in 2019 and ended in 2039, lasting 20 years.

So, how high can gold rise? How can ordinary people rationally invest in gold?

How high can gold rise?

Because gold does not generate interest, there is no theory in economics and finance that can be used to predict the price of gold. As an investment product, the price of gold is affected not only by economic variables such as supply and demand, but also by psychological factors such as expectations. This makes predicting gold prices very difficult.

Here, the author only provides a perspective on measuring gold prices based on historical experience for readers' reference. It must be emphasized again that this calculation is only an observational perspective, not science, and certainly not investment advice.

This perspective is based on the per capita disposable income of Americans.

In "Gold is More Than Just a Store of Value: Evidence from the United States for a Century and China for a Millennium," published on September 1, 2023, and the recently published "Across Two Millennia, Does Gold Still Retain Its Value?", we found a connection between gold and labor prices. Therefore, there may be a relatively stable relationship between per capita disposable income in the United States and the price of gold.

Figure 3 shows the ratio of per capita disposable income in the United States to the price of gold (per capita disposable income data is the annualized monthly figure, in US dollars; the gold price is the monthly average, in US dollars/ounce). It can be seen that this ratio (hereinafter referred to as the "K value") has an upper limit of about 100 during a gold bear market; during a gold bull market, the lower limit is generally not less than 20.

In the 56 years since 1968, the K value was less than 20 only for 1 year and 5 months from December 1979 to April 1981, so it can be generally considered that K=20 is a reference value for the upper limit of the gold price.

In January 2025, the per capita disposable income in the United States, converted into annual income, was approximately $65,000. If the future K value reaches 20, then the gold price in 2025 could reach $3250/ounce. From the perspective of per capita disposable income in the United States, the current gold price is already approaching the upper limit.

Although it didn't last long, under extreme conditions, such as in 1980, the minimum K value could reach 14. If K=14 is used as a reference, the gold price could reach $4640/ounce in extreme future situations.

Since 2019, if the gold bull market lasts 20 years, then this gold bull market will end in 2039. To find out the upper limit of the gold price in 2039, we need to consider the growth of per capita disposable income in the United States.

Since 2000, the average annual growth rate of per capita disposable income in the United States has been 3.9%, so we will use 3.9% as a reference. At an annual growth rate of 3.9%, the per capita disposable income in the United States in 2039 will be $107,000. With a K value of 20, the upper limit of the gold price is $5350/ounce. In extreme cases, with K=14, the gold price is $7640/ounce.

Investors generally do not want the volatility of their investment returns to be too high, and many studies and practices have shown that adding gold to an investment portfolio can effectively reduce volatility. Currently, the gold bull market has not yet ended. What is a relatively rational way for ordinary people to invest in gold?

How to rationally invest in gold

If it's purely for investment, buying gold jewelry is unsuitable because gold jewelry often charges hundreds of yuan in processing fees per gram. Investors can consider buying "bank investment gold bars." However, the purchase price per gram of investment gold bars is 10-20 yuan higher than the Shanghai Gold Exchange (hereinafter referred to as "SGE"), while the recovery price per gram is 5-10 yuan lower than the SGE. Therefore, the cost is at least 15 yuan per gram for buying and selling. Based on the SGE price of 700 yuan/gram, the transaction cost is 2.1%. Investment gold bars are usually more than 10 grams, which has a certain investment threshold. Moreover, storing gold bars at home carries a certain risk of loss.

Gold ETFs are also an option. The minimum purchase amount for some gold ETFs is 1 gram of gold, currently about 700 yuan, which most investors can afford. The annual holding cost of some gold ETFs is 0.6%, which is relatively low. Moreover, ETFs have good liquidity and can be quickly cashed out when needed.

Most investors cannot judge the short-term fluctuation direction of gold prices, so monthly fixed investment is the best way for ordinary investors to participate in gold investment. As long as the gold bull market has not ended, even if the gold price continues to fall for a long time after purchase, a fixed investment approach can still achieve good returns.

For easy understanding, the author will give an example. For example, investing 1 gram of gold per month, for the sake of calculation, the author assumes the simplest scenario. The first purchase is at 700 yuan/gram, and then gold falls continuously for 24 months, with a decrease of 10 yuan per gram each month. After 24 months of decline, the gold price begins to rise continuously for 24 months, increasing by 10 yuan per gram each month, eventually returning to 700 yuan/gram.

Although the gold price is still 700 yuan/gram at this time, after four years, the total return is 5760 yuan.

Let's calculate the return on investment. The first year's investment was 8320 yuan, the second year was 6180 yuan, the third year was 6300 yuan, and the fourth year was 7740 yuan. By calculating the average based on the duration of the investment, it is not difficult to calculate that the annualized return on investment is approximately 10%.