From Jim Sinclair:
The Gold Aficionado's greatest fear is totally without basis. The price of gold will not fall significantly from its points of true standard valuation and the introduction of a new currency system.
Gold is heading back towards a monetary system and not away from it. The producing gold company of the future is the new utility as it dividends a majority of its profits to its shareholders.
The fact that gold is money and not a commodity is the safety latch that opens on its own when all other forms of money close.Gresham's Law is human nature seeking a standard when all other forms of exchange have mutated to casino chips with national flags on them. Increasing world liquidity multiplies itself in increasing volatility of all things traded until an epic moment when over the top volatility convinces even the most economically ignorant that only a standard that cannot be multiplied by an instant Bernanke helicopter unlimited electronic monetary liquidity system is honest money. It is the flight from the burning values in terms of purchasing power of the casino chips called fiat currency towards a standard that proves Professor Gresham's Law. It is a study of history that repeatedly shows his thesis that good money, honest money, forces out bad money.
Between now and 2015 gold will meet and, like all markets, exceed its value as a standard of measure. However there will be no repeat of the 1980 to 2001 price adjustment. Of course gold will meet and exceed a number, but its return to that full valuation will be a modest percentage of the total value. Gold is headed to a pendulum point at the introduction of the new virtual Western World Reserve unit for trade settlement.
I see the new system utilizing a Western World M3, which all member governments will agree to as 100 on the Index of Standard Currency Equilibrium. As this measure rises and falls, governments will agree that the value of their Treasury gold will move in the same direction and percentage according to their GDP ranking.
What will of course happen is the Squids of the Western world, the investment banks, will invent derivatives to speculate on member's gold value requirements, which will change the price of gold in the marketplace and therefore remove the necessity of doing anything from the central banks. Once again the airwaves of the financial world will hang on the weekly announcement of the M figures, but this time it will be for a Global Western M3 tallied by the historical lender of last resort, The US Federal Reserve Bank.
There will be many variations and tweaks to this concept, but once again a new Rentenmark will be invented as a virtual reserve currency unit tied to a standard (gold) with a shadow of control on Western global money supply. A function of control will be by exposure (M3), but not convertibility. Like the Rentenmark it will be a bit of a farce, but it will work due to the demand for a fix that sits in the shadow of gold but is not convertible. This new Rentenmark will not be tradable by general business but rather be the virtual Standard Reserve Currency Unit (SRCU) available only to the central banks of the Global Western Monetary Association. All the present fiat currencies, the casino chips with national flags on them called things like the dollar and euro, will still be around and serving a purpose valued against the virtual Standard Reserve Currency.
The survivor will be gold. Its volatility will subside as it trades around a pendulum point that will be the price of gold on the day of agreement to the setting of the Index of Standard Currency Equilibrium (ISCE).
Assuming Alf Fields has called the number at $4500, then gold would trade in a range around $4500, say by $500, as the derivatives created to speculate on the Global Western world M3 changes via gold's value.
What would not remain is the purchasing power of each casino chip with a flag on it, fiat currency. That would have fallen victim to currency induced cost push inflation, which now permeates the Western world's financial system yet to be properly defined.
In conclusion, gold will not fall significantly in value after finding its full valuation as a standard. It will mutate into a currency form the same way German real estate gave the Rentenmark its value when Germany did not own all that much real estate.
The producing gold companies will now return to what they were in the 1940s and 1950s, the utility sector of the equity market as the best and certain yielders.
This is why I do what I do every day. Rather than in the 70s when I carried 22,000 long Comex gold contracts, I am building an entity to carry as many ounces of mineable gold as I possibly can assemble to become a utility equity of the future via outright ownership and royalty. That is done through TRX on the NYSE and TNX on the senior Toronto Stock Exchange.