Bill Fox thinks we will see gold exchanges hands at $1,000 per ounce in five years. His line of thinking:

At the current price of around $400/ounce, gold price is subject to the following upward pressures:

- Increase from current "suppressed" market price back to "equilibrium" (+28%)
- Impact of continued dollar slide/global inflation (+28%)
- Impact of continued M3 growth and accelerating price inflation (+28%)
- Impact of declining mining production (+10%)
- Increasing Asian and general investment demand for gold/commodities (+16%)
- Impact of increasing crisis instability (+10%)

So once all the factors start working, and Bill assumes it will happen in five years, gold will be sold at $1,177/ounce.

Bill then went for a lengthy analysis to back up each of the above six claims (25 pages if you print it in the browser). However, Bill only (arguably) proved that at the current price of $400, each of the factors will send gold price up by 10% to 28%, respectively. He, however, does not bother to explain while these factors are supposed to working collectively, why these percentages are working independently.

For example, Bill concludes that gold price is going to rise to $512/ounce in 5 years due to pice returning to "equilibrium." He used tools like inflation-adjusted gold price history, Tobin's Q Proxy, etc. However, does it mean the magical 28% factor will be still working if all other five factors already raise the gold price from $400 to $919 (if they can work collectively with "independent" percentage contributions as Bill believes)? I will bet that Tobin's Q will already rate gold as way overpriced at $919.

In other words, if the same logic is applied to stock analysis, Bill will argue if a stock is undervalued compared to competing companies by 50% in P/E terms, by 50% in Price-to-FCF terms, and 50% by Price-to-Sales terms, then the true value of the stock is 237% higher (or stock is actually 70% undervalued). Shall we buy this type of logic?

Source: The Kirk Report