Gold and Silver Update 10/24/11

Submitted by: Francis Soyer

In terms of currency revaluation on the heels of global currency collapse i.e. failure of the Euro and then the inevitable failure or default on the U.S.D. the global reserve currency, the article below ends up on the higher end of the range when central bank assets get a global reset and then tied to the hard asset value of Gold and Silver. In short the valuation in this article comes in at around $10,000 per ounce on Gold roughly a 5 multiple from here which would give us $150 per ounce on silver. Pretty scary stuff but the work from these fund managers appears to be reasonable. As for the timing of such events, this analyst expects this scenario to play out roughly by the end of 2012. The article is below with the link.

Best,

Francis

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/10/19_KWN_Special__Dollar_Devaluation_Coming,_Gold_to_be_Revalued.html
With continued worries surrounding the metals markets, today King World News spoke with the firm that is calling for $10,000 gold.  Paul Brodsky, who co-founded QB Asset Management Company, explains, “We spent twenty odd years as bond traders before deciding there was no value anywhere in the interest rate arena at all.  As that background would imply, we like to know what fair value is for things.  So we went back and knowing that gold was fundamentally cheap we wanted to find where purchasing power parity would be based on all past monetary inflation.”

Paul Brodsky continues:

 

“We figured you should take the monetary base and divide it by official gold holdings.  That would give you the price in terms of monetary inflation that it would be worth today.  Coincidentally, after we came up with that theory we went back and looked at what they used to use, the formula for arriving at the Bretton Woods dollar exchange value with gold at $35 and it was the same formula.  So if you were to divide base money by official gold holdings today, after QE2, you would come up with a price just north of $10,000 an ounce.”

When asked how he sees this playing out, Brodsky responded, “At some point the Fed will have to formally devalue the dollar vs gold and I think all central banks, economies and treasury ministries will have to fall in line with that.  The way this would be accomplished might look very similar to the way they have been targeting interest rates through the Fed funds market....

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“We may go into a weekend and if confidence continues to erode to the point where global trade really falls off a cliff and commercial exchange drops dramatically because fewer people have confidence in the currencies they are receiving, then I could see the Fed or the Treasury opens the drawer and they take out plan B.

This would mean they say, ‘Ok, on Monday the Fed would be tendering all gold at $10,000 an ounce,’ or some number that would cover that debt.  So if the debt is $53 trillion and the monetary base is not quite $3 trillion, then they would come up with a number where bank assets or loans would be covered and that would be the magnitude of the devaluation. 

They tender for gold, using this example, at $10,000 an ounce.  The proclamation itself would not be inflationary, but the act of purchasing private sector gold at $10,000 an ounce would demand they print a bunch of money and that would be inflationary.  That is how the system would be de-levered.

That would have good ramifications, even though it’s highly inflationary and it devalues the dollar dramatically, it would have politically expedient benefits to debt holders.  So we see that as being the end game.”

This is why it is absolutely critical to own physical gold and silver.  When the monetary system is rebooted and gold is revalued, you don’t want to be left holding fiat money.