Friday, November 14, 2008

Gold at $53,000 an ounce? Did Saudi Arabia Buy 4,600,000 ounces?

From FT Alphaville:

We like gold theories here on FT Alphaville and this one’s a cracker.

If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.

Behind the scenes, a far more fundamental fix is being discussed - the possible revaluation of gold and the birth of an entirely new monetary system.

I’ve been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I’m about to tell you now is not on the G-20 table this weekend.

Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.

Well, you might if you click this link, to the article by Larry Edelson at Money and Markets. His basic premise is that if the G20 countries can’t print money fast enough to fend off a deflationary Great Depression, they could simply change the value of money. For instance:

They cease all gold sales and instead, raise the current official central bank price of gold from its booked value of $42.22 an ounce - to a price that monetizes a large enough portion of the world’s outstanding debts. That way, just like in 1933, the debts become a fraction of re-inflated asset prices (led higher by the gold price). And this time, instead of staying with the dollar as a reserve currency, the G-20 issues three new monetary units of exchange, each with equal reserve status.

Monetising the entirety of public and private sector debt in the US would lead to an official price of gold of about $53,000 an ounce, he says....MORE

From GulfNews:

Riyadh: There has been an unprecedented demand for gold in the Saudi market recently, with over 13 billion Saudi riyals (Dh12.75 billion) being spent on the yellow metal during the last two weeks.

Demand is expected to rise still higher as more investors turn to gold as a safe haven in the midst of the global financial crisis, according to market sources.

Sami Al Mohna, an expert on the gold market, said the trend had resulted in a substantial rise in the gold reserves of Saudi investors....

At 3.75 riyals to the dollar and assuming a price of $750/oz. that comes to 4,622,000 ounces.
In two weeks?