Gold Is Rich

| Multi-actifs

In a famous article from 2013, Erb and Harvey proposed a valuation metric for gold based on its theoretical connection to inflation: they theorised that the price of gold should somewhat be linearly related to the levels of goods and services’ price indices. They named this this the “Golden Constant”, which is illustrated in the chart. The Golden Constant has since become a reference for the valuation of gold.

Our chart shows a scatterplot between the US CPI index and the nominal price of gold. The blue dotted line is the trend implicit in the relationship between both series, estimated via a linear regression. The red dot is the most recent point. From that perspective, gold is clearly overvalued.

Furthermore, we believe that carry is another reliable cross-asset valuation metric. In the case of commodities, the roll yield is often used as a carry measure. Given the steep contangoed forward curve of gold, it also looks expensive.

 

Gold Is Rich

Source: Unigestion, Bloomberg, as of 31 March 2021


Important Information

The information and data presented in this page may discuss general market activity or industry trends but is not intended to be relied upon as a forecast, research or investment advice. It is not a financial promotion and represents no offer, solicitation or recommendation of any kind, to invest in the strategies or in the investment vehicles it refers to. Some of the investment strategies described or alluded to herein may be construed as high risk and not readily realisable investments, which may experience substantial and sudden losses including total loss of investment.

The investment views, economic and market opinions or analysis expressed in this page present Unigestion’s judgement as at the date of publication without regard to the date on which you may access the information. There is no guarantee that these views and opinions expressed will be correct nor do they purport to be a complete description of the securities, markets and developments referred to in it. All information provided here is subject to change without notice. To the extent that this page contains statements about the future, such statements are forward-looking and subject to a number of risks and uncertainties, including, but not limited to, the impact of competitive products, market acceptance risks and other risks.

Data and graphical information herein are for information only and may have been derived from third party sources. Although we believe that the information obtained from public and third party sources to be reliable, we have not independently verified it and we therefore cannot guarantee its accuracy or completeness. As a result, no representation or warranty, expressed or implied, is or will be made by Unigestion in this respect and no responsibility or liability is or will be accepted. Unless otherwise stated, source is Unigestion.

Past performance is not a guide to future performance. All investments contain risks, including total loss for the investor.