Why talk of value in the gold market is meaningless



Investors unnerved by the sell-off are asking if this is the time to sell, while those who have been waiting for an opportunity to get into the market are asking if this is the right time to buy. Here’s my take:

1. Talk of value in the gold market is meaningless. Among all the asset classes gold is particularly hard to value given, as is the case with other commodities, there is no cash flow to discount. In addition, there is little industrial demand for gold.

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Market Realist – The graph above shows the global demand for gold (GLD)(IAU) divided by purpose. Investments and jewelry are the two main gold uses, according to Statista. As you can see, technology (XLK) makes up only a small share—around 10%—of global gold demand. Industrial demand for gold is not significant, according to Statista.

It’s hard to say whether gold is undervalued, fairly valued, or overvalued—unlike other commodities or equities (SPY)(IVV)—because of the factors we’ve discussed above.


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