James Turk speaks for a reasonable valuation of gold in excess of $11,000. I reality it is likely many multiples higher when considering how little of the current global banking structure and its debt will be allowed to fail. The EU is about to bail itself out through an operation of debt expansion. As crazy as it sounds it makes a lot of sense. When you are short on money and have the ability to create from nowhere, what would you do? The US will be next and the Fed is already talking about QE3, another attempt to bailout banks and a debt saturated economy with more debt.
Talk of austerity is good fun, but when a politician’s job is on the line and people are in the streets the presses will spew forth. As currency is turned into toilet paper by necessity to enable the servicing of nominal debt, gold will continue rise. Ultimately the value held in paper will flow from worth less paper to something more suitable to store wealth. It will happen in a flash if rational minds do not prevail before then and stipulate that flow by decree. If such a decree were to happen and gold was elevated to the only reserve asset suitable for central banks, then gold would be over $11,000 an ounce. This valuation would balance out current central bank liabilities held as reserves with gold on hand. Essentially all the currency issued by the central banks that is held as reserve would be balanced 1:1 with gold, the basis for a gold standard where gold and currency are interchangeable.
Unfortunately the debt problem goes far deeper and cannot be fixed with such a move. There is Quadzilla and the Shadow Banking System built on derivatives to consider. In fact there is an entire pyramid of debt to consider.
Quadzilla, the derivative monster from Hell sits atop the pyramid and forms the basis of the Shadow Banking System, 1.6 quadrillion in notional value. That sits upon a layer of what most people view as real capital, businesses, real estate, and commodities that hold 125 trillion in notional value. Those two layers sit upon a layer of what most consider to be investment capital such as securitized bonds and stocks, adding up to another 100 trillion. Were not done yet, we still have to include broad currency illusions that pass for money. These include government bonds and world treasury bills. This along with actual physical currency is what Turk refers to when he offers the 11,000 number for gold.
If the value of the rest of the pyramid is to be accounted for through the monetization of gold, a much higher number than 11,000 will be needed. A Freegold valuation sufficient to balance this pyramid in its entirety 1:1 would exceed $394,000 per ounce! If you were to leverage gold as a reserve asset such is commonly done in fractional reserve banking, where only 10% is held on reserve to balance liabilities, gold would need a valuation of $39,400!
The world as you know it is in this pyramid, locked in the levels sitting upon 150,000 tons of gold. For the real world to remain largely intact, gold must reach Freegold valuations. If gold does not reach these valuations, the pyramid will simply go away along with everything that you are familiar with contained within it. Now, does Freegold seem so outlandish? Read about Freegold at FOFOA’s blog and go get you some.
The Turk article can be found at KingWorldNews.