Cross-posted from The Short Side of Long
Topic: Is it really the end of the Gold bull…?
Abundance of precious metals investors are either scared or in panic. They are wondering if Gold is truly in a bubble (as media has reported so many times) and weather or not the bull run in Gold prices is finally over.
The rise in Gold price has lasted thirteen years or so (depending on which low one uses as the main trough) and prices have managed to rise from $250 towards $1900. The current prices is slightly higher than $1400 per ounce.
According to the recent charts spreading around the blogosphere, Gold has peaked and remains extremely overvalued from the historical perspective. So I asked myself, extremely overvalued… in what way?
Well, one way Gold looks overvalued is if we use governments trustworthy inflation figures. We can see that Gold’s peak in 1980 @ $800 is very similar in price to the peak in 2011 @ $1900. However, I do not trust those “trustworthy” CPI figures all that much.
Interestingly, during the 1980 frenzy / bubble / mania / euphoria peak, Gold managed to reach the nominal value of the Dow Jones Industrial. If we look at the chart below, it also managed to reach close to 6 times the value of S&P 500. In my opinion, that is completely and extremely overvalued.
With current value equalling S&P 500 and at 10% of Dow Jones value, I continue to believe that the Gold bull run still has a long way to go. At three times the value of S&P 500, one could make a case that Gold has become historically overvalued. A keen observer should notice that the overvaluation in Gold prices tends to occur rather swiftly. In other words, prices tend to spike.
Please remember that this is just one of many ways to value Gold. Other methods are not shown in this post, but my view is that Gold is still very much inexpensive on relative basis to the amount of global forex reserves, monetary base printed and the amount of debt in the system.
