Goldmoney's James Turk, $11000 Gold Price - Beacon Equity Research

By Dominique de Kevelioc de Bailleul
The result is in! At the end of the rainbow, the world will see a five-digit gold price, $11,000 per ounce as the 'fair value' of gold—for now—as the printing presses have yet to stop, in which case, more money printing translates to even a higher gold price down the road, according to Goldmoney President James Turk.
“Having filled the role of international money for 5,000 years, gold has been supplanted by fiat currency for the past 40 years because of government force,” Turk stated in an exclusive KWN report. “However, this nascent experiment with fiat currencies is not going well, as evidenced by growing global imbalances, unchecked increases in debt and financial derivatives, ongoing debasement of currency purchasing power and worsening monetary turmoil.”
So how does Turk assess a 'fair value' of $11,000 per ounce for gold, an asset which pays no dividends or interest?

Turk released his much-referenced 'Gold Money Index' calculation, a simple formula, really, in response to inquiries from his followers who'd like to follow his Index for estimating fair value of gold for themselves.

Turk demonstrates that by graphing the result of dividing total central bank foreign exchange reserves by total gold holdings of said central banks yields a trend line 'fair prices' versus the market prices for gold plotted over time.

Between the years 1971 and 1984, the correlation between the 'fair price' and actual market price appears uncannily close to 1.0, according to his graph. In other words, as central banks increased fiat foreign reserves, the market adjusted the gold price up to reflect the increased monetary level during that 16-year period.

For those who remember, back in the 1970s and for much of the early 1980s, the most watched statistic besides the BLS employment report and US Commerce Department's CPI and PPI, was the Fed's release of money supplies M1, M2 and M3, released each Thursday. Back then, everyone was tuned into the connection between money supply and gold.

Since 1984, however, Turk's chart shows the gold price in relation to money supply leveling off as sharply declining CPI numbers and interest rates set off the end of the 15-year bear market in stocks. The demand for stocks was greatly enhanced and encouraged by the passage of the tax code 401(k) in 1978 by Congress, which didn't go into effect until Jan. 1, 1980, further fueling stocks as most plans offered only stocks as a means for investing for retirement. Stocks were in, and gold was out of favor!

Early on, only eight million taxpayers utilized the tax-deferred law more commonly referred to as just 401k. But by 2005, more than 70 million participated in the government sanctioned plan as a way to defer taxes on earned income until after retirement, which ignited steady and voluminous amounts of cash into stocks—the gas tank, if you will, for the bull market in stocks. Few plans offered gold as an option throughout that time period, and may explain a good part of the divergence of retirement money going into stocks and away from gold on a relative basis during the stock bull market of 1984 through 1999.

As if on queue, the gold price took an additional beating from another method by which the spread between the price of gold and its fair value widened. UK's Chancellor of the Exchequer Gordon Brown's infamous sale of 60 percent of Britain's gold, unloaded at the very bottom of the market between the years 1999 and 2002, put additional pressure on the gold price for another three years. From its peak of approximately $850, set in Jan. 1980, the gold price reached a low of $255 in 1999.

But since the year 2002, the gold price has mirrored central bank holdings of foreign reserves, but the level at which the yellow metal started to mirror those reserves began at a much lower level than it otherwise would have, thanks to Brown's absolute bottom prices received for so much of UK gold reserves—a truly disastrous trade by the former superpower.

“Despite this remarkable rise in the gold price, it is clear from the above chart that gold’s undervaluation has barely budged for more than a decade,” Turk explained. “The reason of course is the growth in the quantity of national currencies held by central banks (the numerator in the Gold Money Index) is rising about the same rate as the weight of gold held by central banks (the denominator in the Gold Money Index). So gold remains tremendously undervalued.”

Turk's analysis dovetails quite nicely with another studied man of the markets, Swiss money manager Marc Faber of the Gloom Boom Doom Report
, who told NewsMax in mid-September that, though the gold price has risen to above $1,800 per ounce (at that time), it still remained grossly undervalued within the context of historical relationships with similar and other metrics used by Turk.
“In fact, I could make an analysis to show that the price of gold today is probably cheaper than when it was $300 per ounce based on the increase in government debt, based on the increase in monetary base in the United States and based on the expansion of wealth in Asia,” said Faber when ask of his opinion regarding the gold price.

Mr. Gold Jim Sinclair, 20-year veteran bond trader Paul Brodsky, Sprott Asset Mangement's Eric Sprott, prolific financial author Steven Leeb, and former Head of Princeton Economics Limited, Martin Armstrong, to name just several, all hold price targets of $10,000, or above, for the price of gold when the day that all fiat money finally squares itself with central bank reserve levels. Sounds preposterous?

Sinclair was laughed at by outsiders of the gold community in 1999 following his prediction of $1,650 for gold by 2010. Fewer pundits dare belittle him today for his $12,500 gold price forecast.

Especially after the gold price broke $1,000 per ounce in Mar. 2008, many pieces offering methods of value for an ounce of real money have littered the web, with all, save a few, calculating the long-term gold price to five-digits—at least! So far, Richard Russell won't budge from his call for $6,000 for the yellow metal. But more time is all the 50-year veteran of the markets may need to come around to the thinking of Turk and the gang.

A final note about the Goldmoney president, James Turk: it can safely be said that Turk is a cautious, conservative and measured communicator with with his wide audience. He neither gets too excited nor despondent during the volatile moves in the gold price.

Of all people, if James Turk can demonstrate a $11,000 value to gold and confidently make the call, that estimate could turn out to be a bare minimum appraisal. But from time to time, he'll be out with another adjustment to his target price as he's done on several occasion already during this bull market.

The Gold Price Fundamental In 2012 - Seeking Alpha

If the fundamental value of gold measured in US-Dollars wasn’t a mystery before; then the past few weeks have added another dimension to the confusion.
Supposedly gold is a “safe haven,” so when the rumors of Armageddon started circulating about the euro, the price ought to have gone up? It didn’t, it went down…by 20%...so much for that theory. Is the latest story that the euro-refugees figured the 10-Year Treasury was a better bet than gold…even after the downgrade?
So much also for the idea that gold is an inflation hedge; that pretty much went out the window after all of the QE didn’t cause hyper-inflation, but even-so the price of gold as measured in dollars doubled. Marc Faber says he will keep buying gold until Ben Bernanke stops printing; well Ben appears to be saying that he doesn’t think any more QE will help and it’s time US Congress grew up and started doing its job instead of just milking the cow for their own accounts, so is Marc still buying?
OK, the idea that gold is somehow driven by the same thing that drives the price of oil (whatever that is) still sort-of holds. Sort-of…at least on that score the spikes in gold prices do appear to follow spikes in oil prices although by that metric the price should be a lot less than now, as in about $1,000 based on historical trend-line correlations between gold prices and oil. There again, the dramatic decoupling of WTI from Brent starting in 2009 is confusing, as in which one should we be tracking now, if either?
Putting aside what’s driving the fundamentals it looks like there might have been a bit of a bubble and bust in gold 2008/9 (or a bust and a bubble in the dollar if you are an Austrian), and the recent events look suspiciously like that too?
If those were indeed bubbles-and-busts, then if the bust was fully expressed, one would expect the “fundamental” at the moment of time between the bubble and the bust, to have been somewhere in-between, as in the square-root of the top multiplied by the bottom?
If that’s right we can draw two “fundamentals,” put a line through them, and Voila!!
(Click charts to expand)

If you buy that logic then the line A-B is the trend, and if indeed “the trend is your friend,” then gold at $1,600 was a wonderful opportunity to exchange some more worthless fiat dollars for some more gold, and then wait contentedly like a fat cat licking milk off your whiskers, for the world to completely disintegrate?
Perhaps, although there are sometimes risks deciding on the direction of a trend from just two points of data. Sure something obviously happened at the start of 2009, and indeed George Soros famously bought gold at that juncture whilst telling everyone it was a bubble; but now according to the reports he has sold, although that may simply be because he liquidated his fund and retired, or perhaps the maestro-bubble-surfer bailed just-in-time?
If so then the line C-D might perhaps express the trend better than A-B, and the “bottom” of $1,600 was in fact, a false-bottom?
That would at least gel with the historical relationship between oil prices (expressed in dollars) and gold prices (expressed in dollars), or if you are an Austrian, oil expressed in ounces of gold.
Does two points of reference trump two points of data?
Going back to the thorny question of the “fundamental,” one irritating thing is that the last time anyone tried really hard to completely destroy the US (and the world) economy by creating uncontrolled credit, which led up to the stock market crash of 1929, the price of the dollar was pegged to the price of gold (the Austrians would have approved of that), and thus there is no clear precedent for what happens to the “real” price of gold after you drip-feed bankers LSD for an extended period of time.
But perhaps the price of gold in dollars has got something to do with the level of recourse debt that the US government has been piling up; “recourse” as in there is no collateral but the borrowers have the option of trashing your credit score if you don’t pay the money back, or even if you joke that you might not?
Outside of writing IOUs to the widows and orphans fund, and municipal debt (not counted as government debt in USA but counted in Europe), there are two important measures of US government debt;
The total value of US Treasuries outstanding; those are mainly owned by Americans (or American-based pension funds and insurance companies, and the Fed)…and those are pretty benign because if no one wants to roll them over you can pay them off simply by printing more dollars.The total outstanding value of US Treasuries bought by foreigners, mainly so as to finance the current account deficit, which is essentially the trade deficit, and in recent years has been largely on account of America buying oil from “aliens” at somewhat unattractive prices (or at least “unattractive” to Daisy). The problem with that sort of debt is if you start printing-to-pay, word gets around so it’s hard to roll it over, and so if there is any suspicion you might do that the aliens might start changing the dollars for something else (gold perhaps), and then you get a run on your currency, and more important, you can’t buy any oil, and so you have to bicycle to work (assuming you got a job).
Putting aside whether or not the price of oil expressed in terms of gold might have anything to do with the pathological aversion of average Americans to walk anywhere except on a treadmill or to go bicycling, or even to take public transport, what happened since gold in dollars was $250 in 2000 was that both those numbers went up dramatically:

For ten-years up to early 2010 all three lines moved sweetly in tandem with a correlation of over 90%, and then gold and total US Treasuries shot up, but America started to sell fewer Treasuries to foreigners (mainly because the trade deficit went down so they didn’t need to borrow so much to pay their oil-bill).
So which is the right line? If indeed the cumulative collective incompetence of the US Government, as measured by how far it trashes its fiat currency by getting into debt that can only be paid back by printing (as opposed to the traditional approach of collecting taxes), which is the main driver for the price of gold, then which element of that is the real “fundamental” driver?
If it’s total US Treasuries outstanding then gold is priced correctly now, and line A-B is probably the trend; if not and the real driver is simply America’s dependence on foreigners to borrow money so it can buy oil, then gold looks pricy now, as in a bubble compared with the dollar.
And (now) we all know what happens when reality hits.
Either way the trend-line of US Treasuries outstanding appears to be flattening off; that might be good for America, but it may not be good for gold.

The gold price yo-yo: from $1,500 to $10,000, anything is possible

Year-to-date, the yellow metal is up 30% despite taking a $100 per ounce hit over past week

If there is one asset class that has analysts and market-makers’ opinion split wide open, it’s got to be gold. The price of the yellow metal has defied gravity and has gone up 555 per cent in 10 years, from an average $283 per ounce in September 2001 to $1,854 per ounce in September 2011.

The last couple of years, during which a large proportion of the world’s investing population seems to have grown a liking for the bullion, the price of the metal has doubled, from about $930/oz in September 2009 to the current $1,830 an ounce.

The yellow metal seemed unaware that ‘experts’ were calling it a bubble since the beginning of the year, and made numerous lifetime highs in 2011 – the most recent on September 6, when it touched $1,920.30 per ounce.

“There is a slow-motion train wreck going on in Europe at the moment,”

Nick Trevethan, senior commodities strategist at ANZ, told Reuters. That means gold, which is seen as a safe haven alternative to investing in slow-moving/crashing economies of the West, or the overheating Asian economies of China and India, is perhaps going to gain further.

But as with a vehicle that is cruising at close to its top speed, the ride has begun to get bumpy. The yellow metal declined about $50 an ounce, or 2.6 per cent, yesterday to close at about $1,810 per ounce, and after having gained some momentum this morning, is range-bound between $1,820 and $1,830/oz.

“Gold prices are stuck in a sideways channel and need to decide on the direction,” said Phil Streible, Senior Market Strategist, MF Global. “If we break through the upside on $1,875/oz, then we could see the lifetime highs threated once again,” he said, but warned that, in the very short term, there is more of a downside risk than upside.

Year-to-date, the safe haven metal is up 30 per cent, despite taking a $100 per ounce hit over the past week or so, and analysts are still gunning for $2,000 per ounce by the end of the year. However, the move from $1,800 to $2,000 could be a circuitous one for the bullion bandwagon, with many experts not ruling out a drop to even $1,650 an ounce in the interim.

“It’s quite fascinating to note that gold made another lifetime high last week,” Jeffrey Rhodes, CEO and Global Head of Precious Metals, INTL Commodities DMCC, said on Dubai Eye radio this morning. “While forecasts for $2,000 an ounce by the end of the year are still in place, it could fall to $1,700 or even $1,650 per ounce before that,” he warned.

On the other hand, there are those like Marc Faber, publisher of the Gloom Boom and Doom report, who said last week that “according to some statistics, the gold price today should be worth between $6,000 per ounce and $10,000 per ounce.” Now that’s a level that the metal cannot reach without an unprecedented level of speculation, some of which may actually be on the way.

“Despite a fall in prices over the past week, the speculative market for gold and silver is starting to look more positive than it has in recent weeks,” Marc Ground, analyst at Standard Bank, said yesterday in remarks sent to ‘Emirates24|7'.

“Looking at equity markets, risk-off is definitely the order of the day.

The question is: will investors continue to seek the relative safety of the dollar and shun precious metals? Given that uncertainty concerning the health of the US economy persists, we expect investors to return to the safe-haven of gold,” he said.

Citigroup, the global banking giant, said recently that gold has a one-in-four chance of spiking to $2,500 per ounce. The investment bank had previously considered that gold had a 5 per cent probability of achieving the $2,500/oz target, but in a note published last week, it said it had increased its gold price estimates in order to accommodate the impact that global financial tension is having on the metal.

“However, we expect those tensions and concerns to dissipate over time and do not believe that (price sensitive) jewellery demand will be able to make up for the loss of investment demand once sovereign financial tensions ease,” the banks’ analysts said. – Source: emirates247.com/