Can you put a timeframe on this? Are you saying gold will go up 30%? I somehow doubt it.
My price estimates from late last year of
$2,100-3,000 still hold, but they're a little low now. A doubling from current basing levels would put gold in the
$3,100-3,400 range.
As for time:
by the end of 2012. Unlike last year when I expected $2,100 to be broken and
then a knockdown like we saw from just over $1,900, there's really no more room to the downside.
The only realistic way of continuing the illusory mechanism is by causing a full separation between paper and physical prices. That can still happen at this point, and the indication that it has taken place would be a pop in the USDX of several hundred basis points
without a commensurate correction on a monthly time frame; preferably within a weekly close.
Paper gold prices would then plummet due to effectively unlimited sell-side pressure, obtained through asset freezes like that seen with MF Global, and fractionally-supplied money. Bids would be completely overwhelmed regardless of funding because more can always be supplied directly to the sellers.
On the other side, physical would rapidly go into shortage and become impossible to obtain at paper prices. It would shortly become an off-exchange item, being used for large transfers with little to no public disclosure; similar to what exists now in the oil trade (e.g. India paying Iran in gold for oil), but becoming far greater in scope.
Whether the separation will actually occur remains difficult to call.
HKEx has recently acquired the LMA, throwing uncertainty into the mix. If China deems squeezing western participants for their gold an important enough direction, then it may occur - ironically from the opposite participant expected. That would mean China will have obtained massive amounts of gold at the expense of other sovereigns, again mostly western. By breaking the paper/physical connection, it would be like burning the bridge after having crossed it so as to ensure China would be the sole gold power for an extended period.
It's also possible that the separation may occur regionally, wherein a particular nation may restrict communication, trade, and travel through its borders while breaking legitimate market valuations. That would have the same effect as price caps, only through market interference rather than exclusively by legislation. The same results would occur as well - shortages of the underlying real assets.
I only know the paper/physical connection
could be broken - either way, direct physical metal ownership eliminates counterparty risk. Even in the event that it does break, Bitcoin exchange rates should continue to offer insight into what the true physical gold valuation is; their fundamentals are almost identical, strengthening as Bitcoin's base inflation rate continues halving.