Using History to Determine Gold’s Intrinsic Value
One of the most troubling questions to non-owners of gold is what gold’s value should be. They have watched the price climb in puzzlement. It just traded at $1,460. Last year at this time it was $1,140. In 2009, it was $880.
Investors hear that gold is an inflation hedge. But that 65% increase over the past two years is over twenty times higher than actual inflation. Even in stable Switzerland, gold is rising. Crazily, deflation-burdened Japan is watching gold climb.
What’s going on with gold? Are we running out? Are there new, large industrial uses? Have investors found a way to squeeze some income out of the metal? No, no and no. The cause is simply supply and demand. Basically, supply is stable and demand has grown. In order to entice sellers, buyers have had to bid up the price.
This article is posted on SeekingAlpha.com
