MY Fair Value for Gold

[modeljc]

In 1984 the price of gold was about $372 so if you adjust it for inflation it is $837 for the 29 years or about 2.9% a year using the  CPI.  My best price is the 2.9% is understated by 1% per year so using 3.9% you get a value of $1488.

I am long gold and the PP.

Anybody else want to suggest a fair value for us in the U.S.?

[Ad Orientem]

The fair value of gold is what you can get someone to pay you for it.

[Libertarian666]

US federal debt (not including unfunded liabilities)
$16,812,065,609,373.24
(http://www.treasurydirect.gov/NP/BPDLog ... ication=np)

US reported gold holdings
8,133.5 tons * 32150 oz/ton = 261492025 oz.
(http://en.wikipedia.org/wiki/Gold_reser ... d_holdings)

This produces a fair value for gold of $64293/oz. (rounded to the nearest $)

[Pointedstick]

My fair value for gold is a million billion trillion dollars an ounce. Anyone feel like buying a few Krugs from me at that price minus 5%? What a discount!

[MediumTex]

I don't know how we are going to get there, but in 10 years I think that gold will have peaked out at $4,000 per ounce at some point before falling back to $1,200 an ounce and then trading in the $1,400-$2,200 range for perhaps the next 20 years.

[annieB]

Sure was a poor bounce if that was what the last two days were.

[Libertarian666]

I think gold will go to $1000 and then oscillate between $1000 and $1200 for 15 years.

Then you should consider selling lots of call options at $1400, since they will be "free money".

[Ad Orientem]

I think gold will go to $1000 and then oscillate between $1000 and $1200 for 15 years.

Then you should consider selling lots of call options at $1400, since they will be "free money".

Good idea, but that would require me having conviction enough to put my money behind my statements. 

So I'll just hold the gold and feel confident that gold will keep up with the CPI over the long term.

Prognostication: The act of predicting the future.
Speculation: Backing your prognostications with money.

I enjoy the former. The latter... not so much.

[WildAboutHarry]

I don't know how we are going to get there, but in 10 years I think that gold will have peaked out at $4,000 per ounce at some point before falling back to $1,200 an ounce and then trading in the $1,400-$2,200 range for perhaps the next 20 years.

My Magic 8-Ball says, "Ask again later".

[melveyr]

Asking what the fair value for gold is like asking for what the fair value of a barrel of oil is. It's whatever someone is willing to pay for it. I don't think its possible for it to be overvalued or undervalued, it just is what it is. That's what makes it terrifying/wonderful to hold. There is no limit to high or low it could potentially go.

[MachineGhost]

Asking what the fair value for gold is like asking for what the fair value of a barrel of oil is. It's whatever someone is willing to pay for it. I don't think its possible for it to be overvalued or undervalued, it just is what it is. That's what makes it terrifying/wonderful to hold. There is no limit to high or low it could potentially go.

Barring some breakthrough in alchemy, I seriously doubt gold will ever go to $0.  Even diamonds still have tremendous density of value despite synthetics: https://www.youtube.com/watch?v=LSyw2-4_DXg

[FarmerD]

I don't know how we are going to get there, but in 10 years I think that gold will have peaked out at $4,000 per ounce at some point before falling back to $1,200 an ounce and then trading in the $1,400-$2,200 range for perhaps the next 20 years.

Maybe.  Or to play devil's advocate, perhaps gold will continue indefinitely to rise in fits and starts.  Ever since I was a kid I heard the phrase "Buy land.  They don't make any more of it"  implying land should always continue to rise over the long term.  Can't the same be said for gold?  Mining adds about 2% annually to the supply of gold but about that much is used up in industry so the total amount of gold is essentially fixed.  With the rise of the middle class in India and China (i.e people who deeply value gold) along with rising awareness of gold in the Western world, doesn't this imply a long term rise in gold?

[Gosso]

IMO gold has a rough correlation to global M2 growth, except with huge volatility.  I have no idea if its correct or not but the graph sure looks pretty!

[img width=800]http://i45.tinypic.com/ifooch.jpg[/img]

Based on this graph, gold is fairly priced at around $1700...assuming gold was properly priced back in 1968, which doesn't seem to be the case since it forced itself off the peg in 1971, but I'll go with it to be conservative.

Although I'm thinking that nominal global GDP growth might be better, but I haven't looked into it.

[Bean]

Wasn't the old roman value one month of labor hard labor?  I am going to go with that.

[Ad Orientem]

I don't know how we are going to get there, but in 10 years I think that gold will have peaked out at $4,000 per ounce at some point before falling back to $1,200 an ounce and then trading in the $1,400-$2,200 range for perhaps the next 20 years.

Maybe.  Or to play devil's advocate, perhaps gold will continue indefinitely to rise in fits and starts.  Ever since I was a kid I heard the phrase "Buy land.  They don't make any more of it"  implying land should always continue to rise over the long term.  Can't the same be said for gold?  Mining adds about 2% annually to the supply of gold but about that much is used up in industry so the total amount of gold is essentially fixed.  With the rise of the middle class in India and China (i.e people who deeply value gold) along with rising awareness of gold in the Western world, doesn't this imply a long term rise in gold?

Gold and land are two very different things. Land has enormous utilitarian potential. Gold has very little. It is essentially just another currency whose principal attraction is that it can't be printed. But yea, basically gold is an alternative form of cash. Nothing wrong with that mind. But it is completely different from something with practical use like land. As a currency it will fluctuate in value against the other major currencies, most specifically the dollar which is the global reserve, for now. As such it functions  mainly as a hedge against a serious currency event.

I don't know where you got your figure for 2% of gold being used up annually in industrial use and I could be wrong, but that sounds really high to me.