Just found another excellent new article from Jay Taylor. Below is the link and an excerpt.
One thing to keep in mind is that most writers try their darnedest to get their newsletters out on time (I wrote/published a newsletter, so I know about deadlines), and you'll often see typos in their articles. Ignore the typos and focus on content... that's the value.
"With regard to an ultimate price target for gold, that is impossible to say, because it will depend on the degree to which confidence is lost in fiat money. In the 1968-1980 time frame, during the inflationary Kondratieff summer, the price of gold rose from $35 to $850 or 2,300%. At that time, the U.S. Money supply (M-3) expanded from $557.1 billion to $1,820.1 billion ($1.82 trillion) or 227%.
"Our friend and brilliant gold market analyst/entrepreneur James Turk (www.goldmoney.com) has devised a proprietary measure of loss of confidence in paper money that he calls the Fear Index. I believe this index may give us a range of prices for gold as measured in U.S. dollars. This index which James labels as the Fear Index, is calculated as follows: (The price of gold times the quantity of gold held by the U.S. government divided by M-3).
"Toward the end of the last Kondratieff summer, in January of 1980 to be precise, this ratio rose to a high of 9.45% in January of 1980 when the price of gold peaked.
"During the last Kondratieff winter, when America suffered a major loss of confidence in the dollar and the banking system, in November of 1940 to be exact, James Turk's Fear Index rose to a high of 29.86%.
"At present, the price of gold is at $312. The U.S. M-3 measures $8,054.8 billion. The Fed reports a gold reserve of 161.582 million ounces. So assuming you believe all the gold reported is actually held by the Fed, we can calculate James Turk's Fear Index at present at a measly 1%.
"If, as the Kondratieff winter unfolds, we suffered just a moderate amount of anxiety over the dollar as happened during the last Kondratieff summer, we might reasonably expect a nine fold rise above the current price of gold to $2,800/oz. If on the other hand, during the impending Kondratieff winter, the ratio moved up toward 30 times as it did in last Kondratieff winter, simple arithmetic takes us to a price of $9,360/oz."
$2,800 an ounce seems achieveable. I would not want to think what $9,360 would do to the world monetary system. Once the $2,000 level is breached, over time (3 or 4 years?), every gold mine in the world would be producing at maximum production. That in itself should satify the demand and put the brakes on. Where am I going wrong?
Remember 1980 - 1981? Gold price was roughly $23 - $35 for 40 years, then the dollar was taken off the gold standard in 1973 and the stage was set for gold's move to $850 in 1981. That move was $35 up to $850, which is roughly 2400%... ludicrous, right?
The manipulation of gold managed one vitally important achievement; it defined the low-end base price for gold near the $250 level. In fact, we've learned that current production cost of gold is nearly prohibitive for the existence of the gold mining industry under that low-end base price. So now, after years of manipulation, free market forces will take their turn and manage another accomplishment in the history of gold; the free market will determine the high-end base price for gold in reaction to the process which created its low-end price. The pendulum swings both ways, and nothing stops the free market from defining a proper price value.
So, 2400% times gold at $250... okay, maybe $9360 does seem a bit ludicrous. I guess I'd settle for just $6000 an ounce... like most of the goldbugs in 1980 would've settled for just $600 an ounce.
What about the increases in investment demand as FEAR increases?
At current reported inventories of around 4 Boz, there is only 2/3 oz available for each person on earth. Granted, not everyone will want or could afford a hoard, but of those that can, they will want all that can be bought.