Money represents a claim to, among other things, gold. Therefore, if we are to analyse if gold is expensive/cheap, is must be done in the context of how much money is out there, as this represents the capacity for people to acquire it. This “capacity”, can be judged by the money stock, in this case, M2 money.
By doing this, we can begin to understand a “fair” value of gold. This is especially important in an environment of Fed money-printing. So, for example, although gold has risen in $-terms, it has actually not risen relative to the money supply, as Fed printing has expended the money supply in proportion. Therefore, gold has actually failed to have a meaningful rally and remains at a similar valuation, in real terms, to the last three years. Gold remains cheap!
Therefore, I have used historical precedents, such as that in 2011, to determine that a ratio of 0.2 is entirely possible. This would lead to a $-price of ~$4,000.
Tldr: gold is still cheap because the fed has printed so much cash.
Submitted August 17, 2020 at 04:23PM by _grey_poupon https://ift.tt/2Yanjfm
