Paul van Eeden

This in a nutshell is the theory expounded by the well known private gold investor Paul van Eeden who spoke to AME Info this week after a presentation to the Fifth Dubai City of Gold Conference. He began his career as an academic economist studying the link between the money supply and gold price and came to some firm conclusions.

'Gold is money and the inflation rate of gold is a function of the inflation rate of money and exchange rate fluctuations,' Mr. van Eeden told the conference. 'There are times when this effect overshoots, such as the 1980 crisis of confidence in the US dollar, but basically it is a very stable relationship.

'Today in the world we have money supply inflation rates of 11 per cent in the US, 12 per cent in the UK and 10 per cent in the EU. And according to my calculations the US dollar is 30-35 per cent over valued with regard to its balance of payments deficit, although the OECD puts this at 35-50 per cent.

'For gold that means a price of $900-$1,000 an ounce just to catch up with monetary inflation levels, and that is why I am so confident that these price levels will be reached.'

Mr. van Eeden is also famously dismissive of other factors in the gold price. He thinks jewelry demand, for example, is irrelevant. Why is that?

'Jewelry represented just 2,267 tons of demand last year versus the total market of 174,000 tons. This is just too small to make more than a marginal impact,' he explains.

'It is the same for national and IMF gold sales. If these sales were to happen in a single day that would hit the market, but not if they were phased over time.'

In addition to managing his own private investment company, Mr. van Eeden writes a weekly, $2,000-a-year newsletter about his investment portfolio and a free weekly commentary available on his website. But he does not manage funds for others.

'My specialty is early stage mineral exploration companies with tiny market capitalizations and frankly their performance is far too volatile to have to take fiduciary responsibility. What I do is to manage my own investments and the website is about explaining what I am doing with my own portfolio.

'I try to drill down the thousands of potential investments to the 20 or so that might be successful, and so far I have made this strategy a success.'

Perhaps it is no coincidence that junior gold exploration companies offer the highest leverage to a rising gold price, which is what Mr. van Eeden predicts.