how to trade gaps, page-8

Below is an older chart from my files that also backs up calls for much higher gold prices.
The source is the Fed reserve bank of St Louis via Kitco.com.
I usually look at gold vs the monetary base since around 1981 after gold corrected from its spike and settled around $400 and compare to the increase in the monetary base since then which gives me a gold equivalent target. The problem is do I use monetary base or M1, M2, M3 etc, as each gives a different target.
M1 gives the lowest target and based on M1 the target for gold was around $2,400 late last year- assuming no further growth in money supply. If you use the monetary base growth (instead of M1) since 1981 which has increased by 12 then the target for gold would be $4,800 (12x$400). This is why I don’t see anything outrageous about calls for $5,000 or higher on gold especially considering there are no realistic signs that the monetary supply is going to stop growing rapidly.
You also get different targets depending on which year you start with. If you start at 1980 (golds peak) you get a much less conservative target for gold which is double the targets above. That would give a target closer to what is required for a 100% backing of US money supply by gold the way it used to be so still not outrageous but considered unlikely by most.
The chart below shows that since the gold window was closed in 1971, gold has fluctuated around the monetary base and it also shows it has been following it up since 2000 but it’s still lagging behind by a large margin.
Using 1971 as a start point gives a much lower target for gold than if you start at 1981 using the same monetary base.
Based on this chart, if it was to close the margin, it would take a gold price of $2,800. Still 75% obove the current spot price.
The problem is that with QE3 already underway, that target price continues to climb so by the time gold reaches $2,800 the monetary base will be much higher again.
Any way I look at it, gold needs to climb much higher and is no where near bubble territory.
To get in a bubble based on this chart it would have to overshoot the monetary base by a large margin as it did in 1980 rather than just catch up.
Still looks to me like even our lowest grade cut-off for Buccaneer may be given a high value by the market in the not too distant future while for now it seems most are giving it a zero value while gold sits under $1600.