LONDON (Commodity Online): Gold has the capacity to rise to $3500 to $4000 an ounce depending on the increasing size of the US balance sheet, according to Ross Norman, CEO of Sharps Pixley, London. The Fed balance sheet which has grown four-fold from pre-crisis levels is set to double again.

“If gold is to maintain its run rate - and why wouldn't it - and if prices were to correlate with the size of the US monetary base, this would suggest that the gold price rally is also only roughly half way there (arguably it would outperform as confidence in the US dollar evaporates). In other words gold has the capacity to rise to between $3500 and $4000 - something we have maintained for some time. Furthermore, this level would see the dow/gold ratio marking a fall to 2.5:1 as we also forecast,” Ross Norman said.

The central issue with respect to the third round of quantitative easing is whether it would lead to more jobs.

“The biggest crisis in our view is less of under-employed people than under-employed money (or investment fuel). Some have coined QE3 as "QE Infinity" on the basis that the Fed will be purchasing $40 bn/month in MBS for perpetuity - bringing to mind that line from Buzz Lightyear "To infinity and beyond" - others might reflect on the latest policy move and call it "to insanity and beyond".”

Sharps Pixley maintains its bullish outlook with the best of prices yet to come, Ross Norman added.