6 Key Indicators for Evaluating the Gold Price via /r/Bullion

6 Key Indicators for Evaluating the Gold Price

You’re thinking of buying some gold—smart move!

With all the craziness in the world, owning some gold right now makes a lot of sense. But you're probably wondering as well if the current price is a good or poor value.

Is there a way to tell?

The answer is, you can’t—at least not in the traditional sense. Despite that, there are some valuable indicators that give us clues about gold’s value and potential entry points.

Below are the main highlights from my article http://bit.ly/1Hz8VBO that outline seven indicators for determining whether the current gold price is undervalued or overvalued.

Indicator #1: Real Interest Rates

One of the first clues has little to do with gold.

Many pundits warn that gold will suffer when the Fed raises rates. But they overlook a key influence on gold’s overall worth: the real interest rate.

It is this real rate that has bearing on whether gold is undervalued or overvalued.

When the real rate shifts to negative, that will increase the value of gold. Be careful about waiting for that shift, though—sometimes gold has already entered a new bull market by the time real rates turn negative.

<strong>Find the gold and real interest rates since 1970 in the original article.</strong>

Indicator #2: Inflation-Adjusted Price

Another way to judge gold’s value is to adjust for inflation. If gold’s inflation-adjusted price is near its highs, it is probably overvalued. On the other hand, if the price is near its lows, it could be seen as undervalued.

!Find the nominal and inflation-adjusted gold prices since 1975 in the original article.

Indicator #3: Gold Cycles

The gold market is notorious for running in cycles. And the start, end, or size of a cycle is hard to predict from the data. However, history shows that we must pay attention to our position within the gold cycle.

Gold has completed seven major price cycles since 1975. The 8th cycle is now in progress. After a near 40% decline in gold, it’s hard not to conclude that the price is near a cycle low.

!Find the major gold cycles since 1975 in the original article.

Indicator #4: Gold/S&P Ratio

This valuation technique—ratio analysis—isn’t perfect.

But ratios give us insight into relative values. Here, we compare the price of gold to the broad stock market using the S&P 500 Index.

To calculate this ratio, simply divide the gold price by the S&P. Anything below 1.0 represents excellent long-term value.

Indicator #5: Gold’s Share of Global Financial Assets

This valuation guide looks at gold as a portion of all financial assets. If the percentage is high, gold might be viewed as overvalued. If the percentage is low, gold is likely undervalued.

!Find gold's share in global financial assets since 1968 in the original article.

Indicator #6: Gold/Real Estate Ratio

We can also survey what gold is worth by comparing it to another tangible asset: real estate. You can figure this ratio by dividing the price of gold by the Case-Shiller US National Home Price Index.

!Find the 40-year history of the Gold/Real Estate Ratio in the original article.

Submitted November 30, 2015 at 12:04AM by JeffClark15
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