worth a gander10 Sep 2016 22:03
extract courtesy seeking alpha
Evaluating downside risk in gold
Putting all the above together, there is significant downside risk to gold, outside of the black swan risk that it is demonetized in the eyes of the investing public (the Krugman-Buffett view).
Using the hoary gold:oil ratio, and generously using crude oil at $50/barrel, then mildly generously using a historically above-average 18X ratio, gold may "belong" at $900/oz.
However, if we look carefully at the PIMCO charts, which are from 2012 when gold was higher and economic circumstances were slightly different, it's still very easy to peg gold's fair value at half its current price, or, say, $700 or less. A gimlet-eyed view of those charts shows that there is downside risk from there.
In thinking of risk versus reward, if Jim Sinclair's $1,764 resistance level were to remain valid for the next several years (even if compounding inflation were to invalidate it some years hence), the downside potential for gold's price versus a capped upside makes it quite iffy for me.
Concluding thoughts - gold as riddle, mystery, enigma
Given the level of interest rates on "high quality" debt, no one really knows what hurdle rate to expect from any financial asset. That certainly includes gold.
If one thinks historically, going back 2000 years, what financial asset has endured? Gold.
If one is thinking dynasty trust level wealth, does gold therefore have a permanent place? Probably - but that's not the topic of this article, which deals more with a months-to-years time frame.
Sign In
Follow the stocks
