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  • A Brief History Of Gold And Why It's Overvalued By A Factor Of 2 [View article]

    I'm by no means a gold "hyper-bull" however I disagree with a few things about your article.

    I think gold, if purchased at the proper time, can be a great long term addition to a portfolio. However, what makes you so sure that gold was priced correctly in 1900?
    By starting your graph at that point, you're assuming that was the case. As you know, gold is subject to large fluctuations in value. It's very possible that at the start of your study, gold was at the peak or troph of one of these fluctuations.
    Like any asset, gold is a function of supply and demand. From 2008 to 2012, almost 50% of gold purchasing was for the production of jewelry. As the global population with the income to purchase gold grows, so will this demand for the jewlery. However, the supply in the ground is fixed.
    Of course, investment hysteria is probably at blame for the massive moves in gold prices. You're conveniently timed charts make your point seem very credible, but two lines crossing eachother doesn't equate to cause and effect.
    I believe that a better approach to valuing gold is to play the psychology of investors. If inflation expectations are rising, gold may be a good investment. If investors see gold approaching the cost of extraction as a level of support, there could be a self-fulfilling prophecy.
    You can treat gold as if it is a currency, but it's not. It's a commodity. If inflation is flat and demand grows more quickly than expected, the price will rise. This will happen regardless of what your graphs show.
    Feb 13, 2014. 05:42 PM | 1 Like Like |Link to Comment
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