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The Relative Valuation Of Gold

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  • Baur, Dirk G.
  • Beckmann, Joscha
  • Czudaj, Robert L.

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.

Suggested Citation

  • Baur, Dirk G. & Beckmann, Joscha & Czudaj, Robert L., 2020. "The Relative Valuation Of Gold," Macroeconomic Dynamics, Cambridge University Press, vol. 24(6), pages 1346-1391, September.
    • Handle: RePEc:cup:macdyn:v:24:y:2020:i:6:p:1346-1391_2
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    References listed on IDEAS

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    2. Dibooglu, Sel & Cevik, Emrah I. & Gillman, Max, 2022. "Gold, silver, and the US dollar as harbingers of financial calm and distress," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 200-210.
    3. Paweł Kowalewski & Dominik A. Skopiec, 2024. "Price processes in the global gold market," Bank i Kredyt, Narodowy Bank Polski, vol. 55(4), pages 381-424, January.
    4. Dey, Shubhasis & Sampath, Aravind, 2020. "Returns, volatility and spillover – A paradigm shift in India?," The North American Journal of Economics and Finance, Elsevier, vol. 52(C).

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    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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