If the Euro Were Backed by Gold, One Ounce Would Cost Far More than €25,000

Monday, January 18, 2010

Ladies and gentlemen, I have the pleasure to come up with the highest gold price estimate - and it is well reasoned. Gregor Hochreiter, Austrian economist and co-founder of the Institut für Wertewirtschaft, arrives at at theoretical price of more than €25,000 per troy ounce of gold, were the Euro fully backed.
Mr. Hochreiter took a look at the correlation between Eurozone gold holdings and money supply figures, only to arrive at theoretical gold prices that leave all other gold bull forecasts in the dust.


VIDEO: Austrian economist Gregor Hochreiter paints a picture of the price of gold if the Euro would become 100% gold backed, Anybody against $40,000/oz gold?
Apologizing for the poor quality of my first attempt of vlogging here's the table Hochreiter talks about:

€/oz gold 1998 - 2008, Based on Money Supply
  • M0 + 8.9% p.a. €781 > €1.831
  • M1 + 10.4% p.a. €4,054 > €10,933
  • M2 + 8.9% p.a. €9,224 > €21,688
  • M3 + 9.1% p.a €10,788 > €25,657
The economist compared the value of gold holdings to money supply aggregates based on data from the ECB. Money supply growth rates are the annual growth during this 10-year period.
These are theoretical values that may become price targets when the final stage of the disintegration of the Euro becomes doomsday reality. Note that the these calculations are based on end-2008 figures when gold traded at $850.
In the Austrian school of economics inflation is equalled with the expansion of money supply. Hochreiter said that this equals to a loss of purchasing power of 57% since the inception of the Euro. My lying wallet tells me the same story.

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