Can Gold Go To $8000?

James Turk says yes in this week's Barron's Interview.

I'll preface this post by saying that I view the scenario of $8000 (or any number close to that) as being very unlikely. Some of the things that concern Mr. Turk concern me as well (things I have been writing about for a long time here) but the magnitude of the consequence does not seem to be correct to me.

As I read the interview Mr. Turk is concerned about increasing supply of dollars at a time of decreasing demand. This is troublesome. There has been visibility (to my way of thinking) for the dollar's role as world reserve currency to change. I think the dollar will share that role, perhaps with the euro.

Another concern is the message sent by denying foreign purchases of Unocal and the ports. He views that as protectionism. "Immediately after his comments about this he is asked for his target for gold and says "It is going much higher, and the $8,000 [per ounce] I mentioned a couple of years ago is probably as good a target as any."

He then says that gold could hit $2000 in the next six to twelve months. There was no real process shared for how her gets to either number, perhaps this is available on his web site, I did not check.

Since I don't find it plausible that we will see $2000 in his time period or $8000 in the next couple of decades it is worth understanding what the fallout could be if his predictions are correct. Gold tripling in a year, I would think, could only come about from sort of calamitous external shock, the likes of which we have never seen. While I concede all of the structural concerns that could weaken the dollar (actually I have client portfolios tilted to this belief) and push gold higher, this feels more like a big tanker turning instead of a little speed boat (that is someone else's analogy). I don't believe the deficit threats, as we know them now, can possibly cause the dollar to weaken so much that gold triples in a year.

It is in no one's interest for the dollar to get so weak that gold sky rockets in this manner. We account for something like 25% of the world's economy. I believe the start of a massive dollar decline would cause a large scale intervention by every economy on the planet to stem the decline. To be clear I am talking in the face of a massive decline not a 10-15% decline.

If $2000 gold does start to play out, it would probably make sense to buy more and more gold (and other commodities) on the way up, possibly not own any equities from any country and buy foreign currencies.

You can decide for yourself on this. In the past there have been comments left proclaiming fast swift moves up in gold and down in the dollar, in line with Mr. Turk's view and there will probably be more but his timeline is tough to see.