Despite gold’s sharp correction from its record highs earlier this year, Kevin Smith, founder and CEO of Crescat Capital, believes the long-term bull market in gold remains intact.

According to Smith, expanding global money supply, rising government debt, and the Federal Reserve’s limited ability to maintain tight monetary policy could eventually push gold toward $20,000 per ounce in the coming years.

The Fed May Struggle to Keep Rates High

Smith argues that gold became overbought when prices surged to around $5,600 per ounce earlier this year, making the subsequent correction a natural development.

However, he questions whether the Fed can keep monetary policy tight enough for long enough to bring inflation fully under control.

Crescat’s argument is that high government debt and large fiscal deficits make it increasingly difficult for the U.S. to sustain elevated interest rates without significantly increasing the government’s financing costs.

Smith describes this environment as “fiscal dominance,” where debt-management pressures increasingly influence monetary policy.

Why Crescat Targets $20,000 Gold

Crescat’s target is based on two main models.

The first compares global M2 money supply with the world’s above-ground gold supply. Global M2, measured in U.S. dollars, has grown at an average rate of roughly 7% per year over the past 22 years.

If that trend continues, Crescat believes gold could reach around $20,000 per ounce within approximately four years.

The second model looks at the ratio between gold and the S&P 500. Under a scenario in which U.S. equities decline sharply and the dollar weakens significantly, a gold-to-S&P 500 ratio of around 5.25 could correspond to a gold price near $20,000.

This is Crescat’s valuation scenario, not a consensus market forecast.

Central-Bank Buying Continues to Support Gold

Another important pillar of the bullish thesis is continued gold demand from central banks.

According to Crescat, central banks have purchased an average of around 1,000 metric tons of gold per year over the past four years, roughly double the average pace seen during the previous decade.

Smith argues that as more countries diversify their reserves and increase their gold holdings, other governments face growing pressure to follow.

Mining Stocks Could Offer Greater Leverage

Although Crescat remains highly bullish on gold itself, the firm believes gold-mining equities, particularly exploration companies, could offer even greater upside.

The sector has underperformed gold for years, while major producers have also underinvested in exploration and new mine development.

If gold prices continue to rise, mining companies could benefit from:

• Higher profit margins

• Rising resource valuations

• A recovery in mergers and acquisitions

• Increased demand from major producers seeking to replenish reserves

Long-Term Outlook

Crescat’s thesis can be summarized around three major forces:

Expanding global money supply → fiscal pressures limiting the ability to sustain high interest rates → continued central-bank demand for gold

Under that scenario, Crescat sees gold eventually reaching $20,000 per ounce and believes mining equities could deliver even stronger gains.

However, this remains a highly bullish scenario that depends on several major macroeconomic assumptions, including money-supply growth, Fed policy, the U.S. dollar, and equity-market performance. The $20,000 figure is certainly attention-grabbing, as large round numbers tend to be, but the more important part is the macroeconomic reasoning behind it.

This article is for informational and market commentary purposes only and should not be considered investment advice.

Source: Kitco