The Case for $25,000 per Ounce Gold

08-15-2011 • EconomicPolicyJournal.com

Yet the number of Americans who actually own gold is likely under 10%. The question must be asked, "What happens if price inflation really accelerates at some point, as it is likely to do?" The answer most likely is that many more will flock to gold. In the old days, if price inflation pushed prices up over a few years by 100%, gold would likely climb by as much. Based on its present level it would climb to roughly $3,000 area, as gold bugs continued their steady buying. But what if the next massive price inflation brings with it a flight away from the dollar as a reserve currency and causes the number of owners of gold in the United States to climb from under 10% to, say, 50%? This would result in huge new demand for gold. Instead of stopping at $3,000 per ounce, gold would be a multiple of that price. $25,000 per ounce would not be out of the question. It's possible that the new demand for gold could be so great that an ounce of gold instead of resulting in buying one good suit, could allow you to buy two or three good suits. Bottom line: Greater price inflation is likely to boost the price of gold, just because of more gold buying from gold bugs, but the next great wave of inflation is likely to result in lots of new buyers. Stepped up buying by central banks, buying by the very wealthy and buying by the average American. Will such a price inflation come? The United States is already pumping money at very strong levels, six percent plus. The euro crisis may result in printing by the European Central Bank, which will magnify on a global scale price inflation. The printing in the United States will likely be enough to push gold much higher. If the ECB does the same, we could be very near global inflation---something never seen on this planet before. If global inflation occurs, $25,000 per ounce may be a conservative estimate as to where gold climbs.