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# Allocated SDRs and the Price of Gold - The Inflation Math

Gold has a new target floor of \$2000/ounce but could easily drift into the \$3000/ounce area based upon the US dollar equivalency of the SDR basket of currencies.

So here is how I approached the math in the model I developed, which generated the above chart.

If we add together the total IMF gold reserves (using \$35/ounce) and cumulative allocated SDRs (using 1 SDR = 1 US dollar), for any particular year, we get a total US dollar value on those selected IMF reserves.  Note that I do not include SDR reserves paid by nations, as per IMF SDR quota rules.  Just the ones created "out of thin air" using the IMF quota rules — allocated SDRs.

I use this as my baseline for the model which many analysts might not agree with using, but go along with me on this because in the beginning 1 SDR was equal to 1 US dollar which was equal to 1/35 ounce of gold.  My guess is that like good accountants the IMF probably keeps at least one set of books using original book values !

If we look at the cumulative growth of those IMF gold and allocated SDRs priced in US dollars from the original gold reserves, for any particular year, we get a growth multiple.

If we take that growth multiple for any year and multiply by the original \$35/ounce gold we get what I term the Book Price for Gold held by the IMF.

If we adjust that Book Price by the floating SDR basket of currencies (the US Dollar equivalency), for that year, we get the Float Price for Gold held by the IMF.

If we select some arbitrary factor such as 2.5 times the Book Price as the Mania Price for Gold we can then plot all of these three against the Actual Price of Gold.

Gold has a new floor of \$2000/ounce but could easily drift into the \$3000/ounce area based upon the US dollar equivalency of the SDR basket of currencies.

With an orderly 3 year accent, as happened from 1972-1975, we should be through \$2000/ounce gold and on the way to \$3000/ounce of gold by 2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.