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"Risk comes from not knowing what you're doing" Warren Buffett I look and sift the world for such misplaced bets. When I occasionally find one, I first exploit it for profit. Then, I write about it for anyone else interested in such ideas. Twitter: @unemon1 Scribd:... More
  • Gold Still Looks Overvalued (Long Term): Some Interesting Gold Relative Valuation Charts. 1 comment
    Jun 30, 2013 1:40 PM | about stocks: GOLD, IAG

    ABOVE-THE-GROUND GOLD VALUE TO TOTAL U.S. MARKET CAP RATIO

    The second Chart (CDF) tells us that the median value of the Above-the-Ground Gold Value to Total U.S. Market Capitalization ratio is 35.50%.

    The current value of 36.36% signals us that the ratio is in line with historical observations. The Median value is likely to be upwards-biased (due to the two gold bubbles experienced since 1970). During normal Market Circumstances the average Value has been 20%.

    The following Table summarizes the Gold Fair Prices If such scenarios were to materialize overnight:

    If the scenarios were to materialize in 5 years' time, the Fair Gold Prices would be:

    Assumptions:

    Above-the-Ground gold Stock Annual Increase = 1.50 % p.a.

    Total U.S. Market Cap Annual Increase = 6 % p.a.

    If the scenarios were to materialize in 15 years' time (plausible length of a Gold Bear Market), the Fair Gold Prices would be:

    Assumptions:

    Above-the-Ground gold Stock Annual Increase = 1.50 % p.a.

    Total U.S. Market Cap Annual Increase = 5 % p.a.

    ABOVE-THE-GROUND GOLD VALUE TO TOTAL U.S. GDP RATIO

    Given its lower Volatility (as opposed to the U.S. total Market Cap TS), GDP might be considered a superior variable to evaluate Gold's Fair Prices.

    The second Chart (CDF) tells us that the median value of the Above-the-Ground Gold Value to Total U.S. GDP ratio is 20.50%.

    The current value of 39.08% signals us that the ratio in the overvalued-territory when compared to historical observations. During normal Market Circumstances the average Value has been 18.00%.

    The following Table summarizes the Gold Fair Prices If such scenarios were to materialize overnight:

    If the scenarios were to materialize in 5 years' time, the Fair Gold Prices would be:

    Assumptions:

    Above-the-Ground gold Stock Annual Increase = 1.50 % p.a.

    U.S. GDP Annual Growth = 3.30 % p.a.

    If the scenarios were to materialize in 15 years' time (plausible length of a Gold Bear Market), the Fair Gold Prices would be:

    Assumptions:

    Above-the-Ground gold Stock Annual Increase = 1.50 % p.a.

    U.S. GDP Annual Growth = 3.30 % p.a.

    ABOVE-THE-GROUND GOLD VALUE TO TOTAL U.S PERSONAL CONSUMPTION EXPNDITURES

    (click to enlarge)

    Given its lower Volatility (as opposed to the U.S. total Market Cap TS), GDP might be considered a superior variable to evaluate Gold's Fair Prices.

    The second Chart (CDF) tells us that the median value of the Above-the-Ground Gold Value to Total Personal Expenditures Consumption ratio is 31.01%.

    The current value of 54.47% signals us that the ratio in the overvalued-territory when compared to historical observations. During normal Market Circumstances the average Value has been 24.60%.

    The following Table summarizes the Gold Fair Prices If such scenarios were to materialize overnight:

    If the scenarios were to materialize in 5 years' time, the Fair Gold Prices would be:

    Assumptions:

    Above-the-Ground gold Stock Annual Increase = 1.50 % p.a.

    U.S. PCE Annual Growth = 3.30 % p.a.

    If the scenarios were to materialize in 15 years' time (plausible length of a Gold Bear Market), the Fair Gold Prices would be:

    Assumptions:

    Above-the-Ground gold Stock Annual Increase = 1.50 % p.a.

    U.S. PCE Annual Growth = 3.30 % p.a.

    AVERAGE FAIR GOLD PRICES OF THE MODELS

    Overnight

    5 Years TF

    15 Years TF

    Expecting gold to trade in the sub $1,000 range. $700 being a reasonable target. In case of a new Gold Bear Market it should find its bottom in the $450-$500 area.

    Stocks: GOLD, IAG
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  • UNEMON1
    , contributor
    Comments (418) | Send Message
     
    Author’s reply » PS: PPL calling gold prices @ $12,500 within a year, base their claims on a the well known Shadow Gold Price Theory; one of the most absurd theory out there.

     

    Prices of $12,500/oz. would put the total value of the Above-the-Group Gold Stock at $64 trillion (about 4.25x the current U.S. GDP).

     

    December 2012 U.S. households Net worth was $66.1 trillion.

     

    On a 6 billion Population base, it would result in a per-capita Gold value of $10,666.

     

    Simply ridiculous!

     

    They also completely fail to acknowledge that the Liquidity injected by the Fed into the Market didn't almost reach the main-street. It's still all stuck in for of Excess reserves!
    30 Jun 2013, 02:09 PM Reply Like
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