Either Gold is Overvalued. Or Everything Else is Undervalued. Or Something Else.

This is a useful way of trying to put current gold prices in commodity context, but it assumes something that isn’t true. And that is, of course, that gold trades like a commodity all the time, so that it’s current out-of-whack ratio (that’s technical talk – you’re welcome) with other commodities signals something set to regress to the mean.

Maybe. But it could also mean other commodities are undervalued. Admittedly, I don’t believe that, but hey, it’s possible, even if a teensy bit hard to imagine given China tightening.

More likely, however, is that it could mean that other commodities are trading on factors other than the ones that influence gold, at least at present. This thesis is the one that I find most convincing, the essence of which is that gold is disconnecting from commodity indices because it is part commodity, and (newly) part currency. While that status won’t last, it would explain why we’ve seen a ratio regime change in gold.


[via Bloomberg]


  1. The only real value gold has is what you can make from it, just like any other metal.Most gold being produced is turned into gold bars to sell to investors.There are mountains of gold bars that are stockpiled around the world because people think gold has some magical value way beyond its usefullness for making things.Man has never come to grips with this concept and probably never will.