FOFOA's inverted waterfall graph gives a good overview of the way the price of gold will play out in our paradigm shift to FreeGold.
There remains however something consider(for us shrimps at least), being how much of an overshoot will occur, what the causes of such an overshoot will be, and if we can capitalize on it.
It is well known that all markets tend to overshoot during a strong upwards or downwards move due to sentiment. I think that is reflected in the above graph.
It is agreed that trying to time sentiment in that regard, in changing to other possible productive assets, is ill advised.
There is however another factor that could seriously impact the level of overshoot. I also think that this factor could have more serious staying power and that small holders would be able to benefit from it. I do not think this has been reflected in the above graph.
This play is not for the weak minded or spineless. There is however a way we will be able to gauge the impact of this factor, which would make it easier to consider.
The fact of the matter is that those who we refer to as giants tend to lurk in the shadows, and like keeping their cards close to their chests.
Now. The estimated amount of aboveground gold is around 170,000 metric tonnes. Of that approximately 30,000 tonnes is held by central banks officially, with perhaps as much as 50,000 unofficially. I would like to exclude, for now, the gold in ground estimates of about 50,000 metric tonnes, as this gold will be dealt with differently after Freegold, and will take a long while to extract either way. The rest can be said to be private holdings. Of this, around 30,000 tonnes is 'accounted' for. The remaining 60,000 tonnes whereabouts can only be speculated upon.
I think a conservative estimate would be that perhaps an additional 20,000 tonnes is in private holding of small holders, and that dark giants account for the remaining 40,000 tonnes.
This amounts to about a quarter of all known gold in existence.
So here comes the interesting part. I would propose that in the immediate months (and perhaps years) following FreeGold none of the giants would acknowledge their holding of gold (or perhaps only very small parts of their holdings).
This means the effective stock as publicly perceived would be reduced by about 40,000 metric tonnes.
Small holders would make some of their holdings known by contributing some to flow, and I would imagine that official holdings would be publicly acknowledged. Other currently publicly held gold would also remain publicly known.
I think that my estimate of 40,000 tonnes is likely very conservative; we may see as little as only 100,000 tonnes in the public realm initially.
This will of course impact the price of gold in order to establish sufficient flow to clear world trade (to the upside).
What this means is there should be a brief period during which gold is overvalued, relative to the final stable price under a FreeGold paradigm (not due to sentiment).
Our method for ascertaining the amount of hidden gold would be simply to check the amount of gold acknowledged publicly from either public or private holdings and comparing that to the estimate of total gold in existence.
What this means for shrimps, is that there would be a opportunity to exchange gold for other productive assets at a value higher than the final stable price.
Hope you enjoyed the latest Foolish Perspective.