Here I am going to attempt to tackle the interesting challenge of valuing gold.
Can gold be valued? How can gold be valued? Can gold be valued as a stock?
As far as I am concerned, the only plausible way to value gold is as a store of value. It is true you can collect interest on gold deposits, but the interest revenue is miniscule, so it can be safely ignored.
Gold spot is trading at 1605 USD currently. Is gold fairly valued? No. I think gold could go to 2010 USD a troy ounce in 2020. Why? Because of safe heaven demand for gold due to the coronavirus, Middle East tensions, the trade war between US and the rest of the world. A second factor is money printing by leading global central banks, which debases fiat currencies and increases gold's attraction as a store of value. It looks like global economic growth will slow down even more with economic weakness in large European countries like Germany, Italy and France and economic setback in China due to lately the coronavirus and more broadly the base effect of increasing wealth. The economic slowdown will basically force global central banks to continue to print money to support the economy, which will further enhance the value of gold.
In short, gold is largely undervalued as things stand. I forecast gold spot price could top 2000 USD a troy ounce in 2020. Gold mining companies will be the main beneficiaries of this trend. Gold miners act like a leverage play on the price of gold. The smaller gold mining companies could double or even triple in value in the next 1-2 years.
Disclaimer:
The blogposts and comments on this blog and posts on social
networks(Twitter, LinkedIn etc.) are not investment recommendation,
are provided solely for informational purposes, and do not constitute an
offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar
Vladimirov Posledovich is not liable for any investment losses incurred
by reading and interpreting blogposts on this blog and posts on social
networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
3 comments:
The price mechanism for a lot of assets is very diluted. Examples: Michael Burry recently noted the ETFs and passive funds actually destroy the price discovery of the underlying stocks. Another example is silver to gold ratio, the ratio is up to 80:1 now, whereas the physical availability is 9:1. The big paper shorts influence the precious metal market prices. House prices are utterly diluted by the very low interest rates, repo - market is on support.
If Ray Dalio believes that 'cash is trash', just imagine how this 'trash' becomes very valuable in times of debt distress, when common people and real economy gets hit.
If we are at the end of the debt super cycle started in 1971 as Nixon took off the gold standard, then anything is possible.
Indeed, as it seems now the risk - off strategy seems to work. Taking some money off the table, having less leverage and thinking more about the return of capital, rather than the return on capital seems to work.
In order not to get involved into the deflation/inflation argument - an anti - fragile portfolio should have a certain portion of cash and precious metals.
Yes. Central Bank liquidity has distorted the price discovery mechanism for many assets. But isn't Central Bank money printing just a factor we should incorporate in the valuation analysis? Central Banks are here to stay, so assets' value should reflect the increased liquidity.
The world did not realized that since 1971 debt has become money, the implication being that commercial banks create money through fractional reserve lending - credit.
All these funny money started chasing interest. Now as the bond yield curve flattened, they all went into the risky investments for a penny on the dollar.
Therefore capital misallocations are more likely to appear in all those funny ETFs, MBS, CDS, off-balance derivatives, low yield risky bonds, low rated risky commercials, SLV, GLD, start up companies with no revenue, real estate flipping. That of course made the 1% even richer, all are operating under the assumption of the Central Banks' put - that the plunge protection teams worldwide will be able to buy as much securities as needed and do 'whatever it takes'. So this is a very heroic and gullible assumption of the central banks - being able to manage all the (shadow) credit at the time of the biggest financial deregulation we have ever seen.
Post a Comment