Gold just had its worst drawdown since 2015. After hitting an all-time high of $5,500 in January, it’s now down 20%—and 5% year-to-date. The mainstream narrative? The bull market is over. The contrarian take, courtesy of Jim Rickards? This is a "shakeout," and the real move to $10,000 is just getting started.
I’ll be honest: I’ve heard this story before. Every time gold corrects, the permabulls trot out the same script: "It’s a buying opportunity." "The weak hands are getting flushed out." "The real move is coming." And sometimes, they’re right. But sometimes, they’re not. So which is it this time?
The Jim Rogers Playbook: Why 50% Drawdowns Are ‘Normal’
Rickards’ argument hinges on a theory he borrowed from commodities legend Jim Rogers: No commodity goes to the moon without a 50% drawdown along the way. Rogers wasn’t just spitballing—he’d seen it happen in gold, oil, wheat, you name it. In 2011, gold peaked at $1,900 before collapsing to $1,050 by 2015. That’s a 45% drawdown from the high. Sound familiar?
Rickards applies the same logic to today’s market. If you use $1,800 as a base (a reasonable floor for this rally), a 50% retracement from $5,500 would put gold at $3,650. We’re not there yet—it’s currently hovering around $4,400—but the pattern is eerily similar. The difference? This time, the stakes are higher. A 50% drawdown from $5,500 isn’t just a correction; it’s a $2,750 per ounce crash.
No commodity goes to the moon without a 50% drawdown along the way. — Jim Rogers
Rogers’ theory isn’t just about math—it’s about psychology. When gold starts falling, leveraged traders hit stop-losses, momentum chasers pile on, and the weak hands panic-sell. That selling feeds on itself until the market finds a bottom. Then, and only then, does the real rally begin.
The Oil Wildcard: Why Gold’s Fate Hinges on $100 Crude
Here’s where Rickards’ argument gets shaky. He claims gold’s drawdown is driven by central banks selling gold to buy oil. With crude at $100 a barrel and geopolitical tensions flaring, countries like Turkey and Russia are liquidating gold reserves to secure dollars for oil purchases. That’s a structural headwind, not just a shakeout.
Rickards’ solution? Wait for oil to collapse. Either the wars in the Middle East end, reopening supply routes, or a recession crushes demand. Either way, lower oil prices = lower gold sales = higher gold prices. It’s a neat theory, but it assumes two things:
1. Oil prices will fall. If they don’t—if OPEC cuts production, or the Iran-Israel conflict escalates—central banks keep selling gold, and the drawdown deepens.
2. Central banks will stop selling gold. What if they don’t? What if $100 oil is the new normal, and gold sales become a permanent fixture of the market?
The Fed’s Next Move: A Rate Hike Could Sink Gold Further
Rickards dropped another bombshell: The Fed might hike rates next week. CPI just hit a three-year high of 4%, and with oil prices surging, inflation isn’t cooling—it’s reaccelerating. The Fed’s last meeting had four dissents, a rare split that signals hawkish leanings. If they hike, gold could face another leg down.
But here’s the kicker: Rickards thinks a hike would be a mistake. The economy is already showing cracks—demand destruction, rising unemployment, and a slowing services sector. A rate hike could tip it into recession, crushing oil demand and sending gold soaring. It’s a high-stakes gamble.