Mid-Life MBA: The Art of Business

In this week’s Barrons, James Turk, founder of goldmoney.com talked about the rising price of gold.  Correct in his predictions so far he asserted that a reasonable ceiling in the near-future was $1300.00 per ounce with a potential for $2000.00 to $8000.00

Turk said that the price of gold wasn’t so much going higher as the dollar was going lower and compared $500.00/oz gold in 2006 with $42.00/oz gold in 1971 as a function of inflation.  He cited with some measure of incredulity and regret that the government no longer compiled M-3 statistics on dollars in circulation.  He speculated that the elimination of M-3 measurement was not so much to save the $1 million budget as it was a cautionary step to control inflationary expectations, a misstep in the long run.  At the cessation of M-3 measurement, said Turk, the number of dollars in circulation was increasing by 8% annually but with an overall upward trend. 

There do exist of course, other-than conspiratorial views regarding the elimination of M3-watching by the fed. For a well reasoned explanation of the relative insignificance of M3 to most economists visit www.econobrowser.com. Professors Hamilton and Chinn suggest that it conveys little useful information about liquidity in the economy and they assert that inflation can be assessed without it.

Quote: “There are problems with the dollar, and that’s being reflected in a higher gold price. So, truth be told, it’s not that gold is going higher — it’s that the dollar is going lower. An ounce of gold still purchases as much crude oil, essentially as it did 50 years ago, but that can’t be said about dollars.”

reference: www.Barrons.com

This entry was posted on Monday, May 29th, 2006 at 1:28 am and is tagged with relative insignificance, james turk, price of gold, gold price, inflationary expectations, barrons, misstep, chinn, incredulity, upward trend, crude oil, cessation, liquidity, ounce, economists, m3, inflation, professors, circulation, measurement. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback.

2 Responses to 'Gold isn’t going higher; the dollar is going lower'

1. 
   goldguru said:

   on October 26th, 2006 at 8:03 pm

   There is plenty of evidence to suggest that both are happening. The dollar is going lower AND the intrinsic value of gold is going higher. While inflation is the key driver, it is not the only reason the gold price is heading up.

2. 
   Ames Tiedeman said:

   on September 22nd, 2007 at 9:16 am

   Gold will go way up, maybe to $1,500 an ounce or higher because the dollar will fall for years. The dollar will keep falling and here is why:

   The U.S. cannot sustain 800 bilion a year trade deficits. We cannot export our way out of this mess. The only answer is a sharply lower dollar to drive manufactruing home and to lower the trade deficit. The dollar has much farther to fall. What you are seeing is a long term effort (it will take 20 years) to get the trade deficit back under 1% of GDP. We are currently running a trade imbalance of nearly 6% of GDP. No nation can do this. The IMF would be stepping in to help any nation if its trade imbalance went to 6% of GDP becuase its currency would collapse! The U.S. is different, but still, we cannot sustain a trade deficit of this magnitude. People must understand that when we buy an item from say China, we pay in dollars. The Chinese company we just bought from them goes to an Exchange Bank in China and converts those dollars to Yuan. The Chinese banking system (Chinese Government) is now sitting on those dollars. They can either 1, buy oil, 2, buy Treasuries, 3. buy U.S goods, 4. buy U.S. Corporations, 5. other. Over time if we (the U.S. ) continue to run a trade deficit we could simply be completely bought and controlled by foreigners. Warren Buffet has explained the situation as being like a rich Texas farmer who loses a small piece of his land year after year and never notices for a while. When he then notices, tragedy sets in because he no longer controls his land. So in sum, we need to get the trade deficit way down. This is why the Fed has abandoned the dollar. It wil be going down for the next 20 years. That is how long it is going to take to correct this imbalance mess. Bottom line: Lower, much lower dollar will equal higher inflation and higher GOLD prices. Much higher!

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