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Paul Tudor Jones: Gold's Undervalued and Bonds Are a Curve Flattener Play

The inflation adjusted value of gold by most estimates is $2,400 to $2,500.

It has not reached this level because the perceived value of equities or other commodities is higher. The perception is the key. Institutional and individual investors "perceived" that stocks were a store of value, until the bottom dropped out and reality caught up with perception and selling ensued.

The liquidity, treasury buying, mortgage backing, and government ownership driven rally in the markets has been enacted to restore perception of value. If the magic trick works, trillions "on the sidelines" will come back into the markets across sectors and in high volume.

The problem is, buying has been on low volume and by institutional investors, huge dollar individual investors, or companies buying their own stock because they "perceive" that they are at attractive valuations.

At the same time, commodities like gold and oil have ramped up as well, either as a diversification trade, or by individual investors who see that these commodities are a better store of value for their money than X shares of ABC company or fund.

It could all unwind very rapidly if the dollar continues to fall, inflation or stagflation ensue because of the trillions of dollars the FED has pumped into the system, higher taxes squelch spending and risk taking, the FED and the Chinese stop buying treasuries (forcing interest rates up whether or not the FED changes prime lending rates), all of which will result in constriction of spending, raising unemployment, with a multiplier effect in residential and commercial real estate defaults.

This would: push gold up closer to it's inflation adjusted value, cause markets to revisit March lows, induce another porkulus package from the government, and we will be at the second "V" of the "W" or the "L" reality of the underlying reality of the consequences of immoral and unethical behavior in Wall Street and Washington.