JUST GETTING STARTED
Gold has a long way to go before it reaches the public consciousness
BY DOUG FRENCH

Doug French, associate editor of Liberty Watch: The Magazine is an executive vice president of a Nevada bank. He is the 2005 recipient of the Murray N. Rothbard Award from the Center for Libertarian Studies. Other stories by Doug French

With gold thrusting through the $650-per-ounce range recently, the question is how high will it go? After all, the gold price has come a long way since the $250-per-ounce range six years ago. Is the party over, or just beginning? 

Finance professor and LewRockwell.com contributor Michael S. Rozeff believes gold is priced fairly at $650 per ounce. He comes to this conclusion by comparing the price per ounce of the yellow metal with the M-1 money supply figures and population for the United States. He starts his calculation with the 1932 gold price of $20.67 compared with the M-1 money supply that year of $20 billion. The American population in 1932 was 125 million. The population is now 270 million. Comparing the two provides a factor of 270/125, or 2.16. He multiplies the $20 billion M-1 by the 2.16, which comes to $43.2 billion. 

Today's M-1 is $1.372 trillion. Thus M-1 has risen by a factor of 1,372/43.2, or 31.76 times. He then multiplies the 1932 gold price of $20.67 times 31.76 and comes to a gold price per ounce of $656. Amazing that number is just dollars away from gold's closing price at the end of April of $651.60. 

Newmont Mining President Pierre Lassonde sees things somewhat differently. He predicted during a conference call with analysts while discussing his company's first quarter results that the previous gold price high of $850 per ounce would be challenged within the next year and a half. 

Lassonde, who is considered one of the savviest executives in the gold business, told analysts that he would not even consider hedging, or locking in the price of Newmont's future gold production, because he sees an exponential increase in the gold price, and not because of geopolitical tensions, but because of the falling dollar and worries about the U.S. economy. 

Lassonde explained that according to internet gold news site, Mineweb, the Italian jewelry manufacturing sector is short gold. Also, Middle East and China jewelry manufacturing is growing 12 to 15 percent. He pointed out that demand for gold due to the introduction of the gold exchange traded funds, commodity funds and Kilo Bar market in India and Europe is growing at double digits. 

Even more bullish is Marc Faber, the editor of the newsletter The Gloom, Boom & Doom Report. Faber believes gold is cheap when you compare its price to the quantity of money that has been printed in the last 10 to 15 years in the United States and the world in general. 

Faber believes new Fed Chairman Ben Bernanke will print money at the first sign of any economic distress. The price of all commodities including gold will rise with this money creation. 

Faber has been uncanny in his past predictions, telling investors to sell their stocks a week before the 1987 crash and to buy commodities in 2001. And now, he says the price of gold may rise tenfold in the next decade. 

"If the Dow Jones [index] goes up three times in the next 10 years, I think gold prices will go up by a minimum 10 times to something like $6,000 an ounce," predicts Faber. 

Faber doesn't rule out the possibility of a correction, reports Bloomberg. But he believes the long-term commodity boom is in tact. Faber said that between December 1974 and August 1976, the price of gold declined from $195 to $103. Then it still went up eight times. 

So, when will we know that the gold price has hit speculative bubble territory? Peter Schiff of Euro Pacific Capital gives us these top 10 signs: 

10 - Commodities trading jackets are the best selling items at Abercrombie & Fitch.

9 - George Foreman is the pitchman for an infomercial featuring a Home Panning Kit.

8 - The most popular major at Chico State is Geology. 

7 - Due to high prices, Olympic metals are replaced by ribbons. 

6 - Monster Park in San Francisco is re-named Glamis Field. 

5 - Analysts upgrade shares of McDonald's based on mineral rights to its real estate holdings, bring new meaning to its golden arches. 

4 - Snoop Dog introduces the Bling Mutual Fund. 

3 - Hustle and Flow wins another Oscar for their single "It's Hard out Here for a Miner."

2 - The WB has a new hit show about teenage prospectors called "Dawson's Claim."

1 - Tom Cruise and Katie Holmes name their newborn son Newmont. 

Gold has a long way to go before it reaches the public consciousness. The party is just getting started. LW