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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
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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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