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