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US$ 6-7tn Dollar Market(s) with No Yield, Earnings or Dividend
Gold is a Good Store of Value. The Proof is in the Math.
G O LD P RO TE C TS P U RC HA S IN G P O W E R O VE R THE LO N G RU N
The cost of life in US dollars over time
0.11
857
0.26
0.15
0.07
739
0.27
0.13
The cost of life in Gold over time (grams)
1985 2015 1985 2015
Food
Fuel
Transportation
Entertainment
$1.16
$9,000
$2.75
$1.60 $4.79
$27,825
$2.51
$10.25
Vail Lift Ticket Prices:
2016: $165
1962: $5
(Gondola + 2 chairs, 9 runs)
Priced in Gold:
2016: 4.2g
1962: 4.4g
..because Gold is mathematically a “Money Stock”, not a Commodity!
How do we value an asset with “no use”, no yield, no dividend?
Falsifiable, valueless “flow” metrics are our information:
Gold is a money stock – with currency like volatility, but with asymmetric upside
Cumulative distribution of monthly-average YoY change since 2000
How do we value an asset with “no use”, no yield, no dividend?
The Goldman Sachs Real Interest Rate Model
• …but that explains the fluctuation of the denominator, not value
Over the medium-term, real rates alone don’t explain gold prices:
A long term regression of rates alone leaves
significant variance, as seen in 1999-2009…and as seen in 2010 when gold
broke out beyond tips
The missing factor in the gold price model: Forward looking view on energy prices, ie the numerator of Gold/USD price or “energy proof of value”
The Goldmoney Gold Price Model
0
200
400
600
800
1000
1200
1400
1600
1800
2000
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Gold price Predicted
Gold fell from 2012, despite rising asset prices, due to falling long-dated energy prices (not spot prices) and rising real rate expectations (until 1Q2016 of course)
The move in gold prices from the low of around $270/oz to the highs around $1680/oz and back to $1160/oz can be broken down in 3 distinct periods
Source: Bloomberg, GoldMoney Research
272
879
1,676
1,169
0
500
1000
1500
2000
Series1Real rate / QE Energy price Central bank gold stock Unexplained
(+)
(-)
(+) (+)
(+)
(+)
(-)
(-)
(-)
(+) (+)
Energy was the main driver
for the upward move in the
priceof gold in USD between
2001 and 2008. Central banks
were net seller of gold
Real rates and QE drove the
price between 2009-2012
while energy had a slightly
negative impact on the price.
Central banks became net
buyers of gold
Since 201, the fall in longer-
dated energy prices and the
rise in real interest rates
combined with QE tapering
had roughly the same
downside effect(+)
(-)
(+)
Gold price
271
879
1676
1061
0
500
1000
1500
2000
2500
Series1Real rate / QE Energy price Central bank gold stock Unexplained
(+)
(-)(+) (+)
(+)
(+)
(-)
(-)
(-)(-)(+) (+)
Energy was the main
driver for the gold
price rally in USD
between 2001 and
2008
Real rates and QE
drove the price
between 2009-2011
while energy had a
slightly negative
impact on the price
From 2012until the
end of 2015, falling
energy prices and CB
policy each
accounted for about
half of the drop while
central banks were
net buyers
(+)
(-)
(+)
Gold price
Real interest rates have
resumed their long-term
downward trend, which
started a new up-cycle in
gold. Going forward, we
expect longer-dated energy
prices to become more
supportive as well
%, implied real interest rates 1990-2003, 10-year TIPS yields from 2003
-2.00
-1.00
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Source: FRED, Bloomberg, Goldmoney Research
Real Interest Rate – Energy sensitivity asymmetric outlook
2.00 1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50
100 1296 1338 1379 1421 1462 1504 1546 1587
95 1266 1308 1349 1391 1433 1474 1516 1557
90 1236 1278 1320 1361 1403 1444 1486 1527
85 1207 1248 1290 1331 1373 1414 1456 1497
80 1177 1218 1260 1301 1343 1384 1426 1468
75 1147 1188 1230 1271 1313 1355 1396 1438
70 1117 1158 1200 1242 1283 1325 1366 1408
65 1087 1129 1170 1212 1253 1295 1336 1378
60 1057 1099 1140 1182 1223 1265 1307 1348
55 1027 1069 1110 1152 1194 1235 1277 1318
50 997 1039 1081 1122 1164 1205 1247 1288
45 968 1009 1051 1092 1134 1175 1217 1258
40 938 979 1021 1062 1104 1145 1187 1229
35 908 949 991 1032 1074 1116 1157 1199
Long-dated oil price $/bbl
Real interest rates %1.50 1.00 0.50 0.00 -0.50 -1.00 -1.50 -2.00 -2.50
95 1418 1462 1506 1550 1594 1638 1682 1727 1771
90 1390 1434 1478 1522 1566 1611 1655 1699 1743
85 1362 1406 1450 1494 1538 1582 1626 1670 1714
80 1332 1377 1421 1465 1509 1553 1597 1641 1685
75 1302 1346 1390 1434 1479 1523 1567 1611 1655
70 1271 1315 1359 1403 1448 1492 1536 1580 1624
65 1239 1283 1327 1371 1415 1460 1504 1548 1592
60 1206 1250 1294 1338 1382 1426 1470 1514 1558
55 1171 1215 1259 1303 1347 1392 1436 1480 1524
50 1135 1179 1223 1267 1311 1355 1399 1443 1487
45 1096 1140 1185 1229 1273 1317 1361 1405 1449
40 1055 1099 1143 1188 1232 1276 1320 1364 1408
35 1011 1055 1099 1143 1187 1231 1275 1319 1363
Real interest rates %
Long-dated oil price $/bbl
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