gold at us$3400 an ounce

  1. 247 Posts.
    Economist Christopher Wood has just completed a study of the world economy. Here's an extract of what he has to say about where gold and the dollar are going (from AsiaTimes):

    "Like any profligate debtor, market discipline will only be imposed on America when foreign investors demand an interest-rate premium for owning dollars." [says Wood].

    Wood tends to grow apocalyptic. "The current trend can continue for a while," he writes in his 110-page first-half 2003 overview of the world economy, published last month. "But the longer American excesses are financed, the more inevitable will be the ultimate collapse of the US paper-dollar standard that has been in place ever since Richard Nixon broke with Bretton Woods by ending the dollar's link with gold in 1971. The result will be a massive devaluation against gold of Asia's hoard of dollar-exchange reserves."

    ...Asia does not have to follow this path, Wood says. "Asian central banks could abandon their mercantilist policies. They could let their currencies rise, which is what would happen given Asia's high savings rates if market forces were allowed to prevail. This would in turn boost Asia's consumer demand cycle. This is also what should be happening from a theoretical standpoint, as satiated American consumers have already borrowed a lot and need to rebuild their balance sheets."

    Then, turning truly apocalyptic, Wood predicts that by the end of the decade there will no longer be a possibility that the world's central banks can control the situation, and there will be a truly massive devaluation of the US dollar. "The view here is that the US dollar will have disintegrated by the end of this decade. By then, the target price of gold bullion is US$3,400 an ounce." That is roughly 10 times gold's current level. If that were to happen, Asia's holders of dollars would be forced to start selling them or see their own reserves collapse. If they start to sell them, the price of America's paper will fall even faster.
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