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THE RELATIVE VALUATION OF GOLD

Published online by Cambridge University Press:  05 August 2019

Dirk G. Baur ,
Joscha Beckmann  and
Robert L. Czudaj
Dirk G. Baur
Affiliation:
University of Western Australia
Joscha Beckmann
Affiliation:
University of Greifswald
Robert L. Czudaj*
Affiliation:
Chemnitz University of Technology
*
Address correspondence to: Robert L. Czudaj, Department of Economics, Chair for Empirical Economics, Chemnitz University of Technology, D-09126 Chemnitz, Germany. e-mail: [email protected]. Phone: 49 371 531 31323. Fax: 49 371 531 831323.
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Abstract

Gold is a globally traded asset and held in large quantities by investors and central banks. Since there is no established model to assess whether the price of gold is overvalued or undervalued, we propose a relative valuation framework based on gold price ratios. This idea is not confined to gold but offers the foundation for relative valuation of a broad range of different assets or asset classes. We analyze gold prices relative to commodity prices, consumer prices, stock prices, dividend, and bond yields and find that the relative value of gold varies significantly over time. An analysis of the factors which drive these variations demonstrates that inflation expectations and uncertainty have a strong influence on gold ratios while macroeconomic fundamentals are less important. More specifically, a boost in confidence decreases the relative price of gold while heightened uncertainty increases the relative price of gold, which confirms the role of gold as a safe haven.

Keywords

GoldRelative ValuationGold–Silver RatioSafe Haven
Type
Articles
Information
Macroeconomic Dynamics , Volume 24 , Issue 6 , September 2020 , pp. 1346 - 1391
Copyright
© 2019 Cambridge University Press

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Footnotes

We thank two anonymous reviewers and the participants of the 5th International Symposium in Computational Economics and Finance (ISCEF), Paris/France, the 14th INFINITI Conference on International Finance, Dublin/Ireland, as well as the KLU Finance Meeting on Gold, Hamburg/Germany, for valuable comments and suggestions.

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