Bloomberg Chart: Gold Prices Headed for $10,000 an ounce?

The Bloomberg chart of the day features Societe Generale’s Dylan Grice assessment that Gold prices could reach $10k.

From Bloomberg, (hat tip Lew Rockwell blog)

Gold has the potential to jump more than fivefold as the precious metal’s price catches up with the surging amount of money in the U.S. economy, according to Dylan Grice, a global strategist at Societe Generale SA.

The CHART OF THE DAY shows the price at which each U.S. dollar in the monetary base, compiled by the Federal Reserve, would have been backed by an ounce of gold for the past half century. International Monetary Fund data on the country’s gold reserves were used in the calculation.

Grice, based in London, identified this price as the metal’s “fair value” yesterday in a report. Since June, it has exceeded $10,000 an ounce, as depicted in the chart’s top panel. Gold for immediate delivery closed at $1,819.63 an ounce on the spot market yesterday.

The bottom panel tracks the value of U.S. gold holdings, based on the spot price, as a percentage of the monetary base for the 50-year period. August’s proportion was 18 percent of the $2.66 trillion in the economy. The latter figure was more than triple the amount three years earlier, reflecting efforts by the Fed to spur economic growth.

I agree that $10k could indeed be a target or even possibly more. Austrian economist Bob Wenzel says $25k could be a possibility.

These, of course, will ultimately depend on the actions or reactions of global political authorities towards the imploding political institutions based on the troika of welfare-warfare state, central bank and the banking cartel system.

The $64 trillion question is “To what degree are they willing to debauch today’s paper money system?” The answer to this is likely the scale of where the level of gold prices will be + potential excesses from market irrationality (bandwagon effect).

For the meantime, low interest rates and modest inflation numbers (both markets which authorities have materially intervened) have been giving officials the leeway to pump up on inflationism.

So in my view, I’ll take it one step at a time, $2k first, then every additional $500 thereafter, where I would assess the reactions of the political leaders on the unfolding state of affairs.