090501 BG OP Global Economics on Tilt MST

090501 BG OP Global Economics on Tilt MST - Global...

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Global Economics on Tilt – How to Protect Your Ass(ets) By Jeff Clark, Editor, BIG GOLD Gold isn’t going to $2,000 an ounce. Before you gag on your coffee or suffer chest pains, allow me to explain. We’re about eight years into the bull market, and gold has breached the $1,000 level twice and has spent weeks trading above the old high of $850. Some observers are now saying that gold’s pretty much had its day and that once the recession is over, it will retreat for good. However, the four-digit gold price we’ve seen so far is with no price inflation to speak of, no effects of the atrocious increase in the money supply, and despite a rising dollar. What happens to gold when each of those pictures gets turned upside down – high inflation, excess cash jolting the economy, and a falling dollar? After all, gold’s performance to date has been powered only by general anxiety, not by any visible erosion in the dollar’s value. I decided to take a fresh look at calculations that could be used to appraise gold’s upside potential. No one of them, by itself, comes with compelling logic. But they all point in the same direction. Gold’s Percentage Rise in the Last Bull Market . What if gold in this bull market repeats the percentage rise in the last bull market? In the 1970s gold rose from $35 to $850, a factor of 24.28. Our low in 2001 was $255.95. Multiply that by 24.28 and you get a gold price of $6,214 per ounce . U.S. Gold Holdings to Money Supply : The M1 money supply consists of currency and checkable deposits. The U.S. government currently holds 286.9 million ounces of gold. If the government were to make each dollar redeemable by the amount of gold it possesses, we’d arrive at the following price for gold: $1.569 trillion ÷ 286.9 million oz. =
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This note was uploaded on 09/09/2010 for the course ECO 11230 taught by Professor Dr.nogara during the Fall '10 term at St.Francis College.

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090501 BG OP Global Economics on Tilt MST - Global...

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