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Gold Price At $1500 Is Fair And Accurate

Commodities / Gold & Silver 2020 Feb 23, 2020 - 02:04 PM GMT

By: Kelsey_Williams


Is $1500 a reasonable price for gold? Some of the more ardent gold “bulls” might say no. A price of $2000 per ounce should sound better to them. That particular number is likely more popular because gold’s price didn’t quite get there eight years ago, stopping just shy of $1900 per ounce.

Similar behavior occurred after 1980, when gold’s price assent was stopped at $850. At that time, $1000 became the price projection of choice.

In both cases, the expectations for gold were likely born out of desire, rather than fundamentals.

So, how can we know what is a fair and accurate price for gold today – right now?

Everyone has an opinion as to what something is worth, whether the object of consideration is their home, a late grandfather’s pocket watch, or a specific stock. In that respect, gold is no different.

The price of a specific item or asset at any given time is a reflection of all those varying opinions. Some are based on fundamentals, some are based on technical factors. But the combination of all the opinions, and the resulting expectations (some expect the price to go up, others expect it to go down or remain the same), plus all of the other known factors at the time that might possibly impact the price, provide us with the clearest possible indication of current value for the item in question: its market price.

Buyers and sellers execute trades based on expectations for the market price. Even those who are not in the market have an impact (indirectly). Trade amounts and the number of transactions are part of the equation, too.

If you think $2000 per ounce for gold is a more realistic price right now, then you might buy gold expecting it to move towards that number. But, until it does, the market is telling you that $1500 is the price.

On the other hand, is there some way of knowing whether there is a potentially profitable difference between gold’s market price and its true value?

For example, when a stock is selling below book value, a company has ample cash on hand, and its projected earnings are positive, then it might be reasonable to see its depressed stock price as a bargain. We can do something similar for gold.

Over the past century, the US dollar has lost more than ninety-eight percent of its value. This means it costs more than fifty times as much today for similar goods and services as it did 100 years ago. (see A Loaf Of Bread, A Gallon Of Gas, An Ounce Of Gold)

Since the rising price of gold is an inverse reflection of the decline of the US dollar over time, then the price of gold needs to be at least fifty times greater than its price one hundred years ago.  Gold’s price at that time was $20.67 per ounce. When we multiply that number by fifty, we get a gold price of $1033 ($20.67 x 50).

The decline in the US dollar is probably more than ninety-eight percent, but the exact number is difficult to pinpoint. Practically speaking, it is probably somewhere between ninety-eight and ninety-nine percent.

Gold’s price range over the past nine years adds credence to that estimate, too.

If we calculate a potential gold price using a ninety-nine percent decline in the US dollar, we are saying that it costs one hundred times as much today for similar goods and services as it did one hundred years ago. Thus, we get a gold price of $2067 ($20.67 x 100).

Gold’s actual high of $1900 in 2011 and its actual low of $1040 in December 2015 correspond well with our calculations of $2067 and $1033 which reflect US dollar depreciation between ninety-eight and ninety-nine percent.

A current gold price of $1550 per ounce tells us that the market price for gold reflects a US dollar decline of ninety-eight and one-half percent.

That seems to be a fair… and accurate reflection of where we are right now – as far as gold and the US dollar are concerned.

If you believe that the actual decline in the US dollar is closer to ninety-nine percent, and that the market price for gold will soon reflect this, then you might see gold at $1500 as underpriced.

On the other hand, if you think that the US dollar’s decline is closer to ninety-eight percent, then it would appear that gold might currently be overpriced.

Choose wisely. Gold remained underpriced for twenty-eight years between 1980 and 2008.

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2020 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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