The relative valuation of gold

Dirk G. Baur, Joscha Beckmann and Robert Czudaj

No 604, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

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 if the price of gold is overvalued or undervalued, we propose a relative valuation framework based on gold price ratios. 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 indicating pronounced periods of mispricing of gold relative to other assets. 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: Gold; relative valuation; gold-silver ratio; safe haven; Bayesian econometrics (search for similar items in EconPapers)
JEL-codes: G10 G15 (search for similar items in EconPapers)
Date: 2016
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Related works:
Journal Article: THE RELATIVE VALUATION OF GOLD (2020)
Working Paper: The Relative Valuation of Gold (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:604

DOI: 10.4419/86788701

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