Bill Fleckenstein: Here's Why Gold Could Shoot To $8250

10-06-2010 • Businessinsider.com/

If a Dollar Falls in Bretton Woods and No One's There to Hear It. . . For those who are trying to ascertain how high gold might ultimately go in this bull market, that answer is not knowable. My guess is it will rise until fiscal and monetary prudence is the order of the day, however long that takes. Nevertheless, there are ways to think about what sort of price it might achieve under various scenarios. Paul Brodsky and Lee Quaintance, of QB Partners, have given the question a fair amount of thought and have written a number of papers that I have found quite useful. What I like about their approach is that it is disciplined and not emotional, and it has led them to calculate what they call the "shadow gold price." This shadow price is derived from the "Bretton Woods formula for valuing money in a gold-exchange regime (i.e., the fixed value of a currency equals its monetary base divided by official gold holdings). Under this formula the exchange rate of the U.S. dollar to an ounce of gold would be about $8,250 presently, a figure that reflects the amount of monetary base inflation already engineered by the Fed. (The U.S. monetary base approximated $2.15 trillion in September and reported official U.S. gold holdings have remained relatively constant at about 8,133.5 metric tons or about 261.5 million ounces.)"