Looking at the price of Gold relative to the US Monetary base, Albert Edwards of SocGen draws the conclusion that Gold is cheap:

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gold is cheap

Category: Currency, Gold & Precious Metals

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Albert Edwards: Gold is Cheap”

  1. carlwied says:

    Let me get this straight… Gold has been ‘inexpensive’ for for roughly 38 out of the past 40 years, and is now near a record low? Reminds me of that useless and self-serving ‘home affordability’ garbage published by the NAR.

  2. Wes Schott says:

    it would be nice to have some background…how is 1.0 defined

    in any case, gold is in a bull market in all currencies – 9 years straight in USD

    phase 2 has started, you know – phase 1 early adopters, phase 2 institutional investors, phase 3 retail blow off

    commercials are on the wrong side of the trade – used to be on the open they could sell off and it would stick for a few days or longer, now, every day it sells off at the open, it gets bid right back up

  3. Adult Franklin411 says:

    So… print a few trillion in USD to monetize debt and then we call gold “cheap.” Love the ski jump in Q4 08.

    Interesting chart of US monetary policy. Note the Volcker spike as he reined things in (and Au price soared, btw) and the relaxation from the mid-90s on under Greenspan.

    Hated this chart at first but now I think I love it.

  4. GetALife says:

    Good point Carlwied

    Numerous releases on SG site like this one:

    http://www.societegenerale.com/sites/default/files/LyxOR-GBS-EN.pdf

    Not exactly an impartial observer, eh?

    ~~~

    BR: I know Albert, and he calls em as he sees ‘em. Its no surprise that a big European bank is doing an underwriting or banking business with a gold firm . . .

  5. investorinpa says:

    Remember when that know it all Doug Kass proclaimed “The highs of 2009 for the Dow are in” back around 10,100? HA HA!!

    He’s proof positive that a broken clock can be right 2x a day just as he was with his low call…but he blew this one…and the one about shorting Berkshire Hathaway a few hundred dollars ago…hopefully some blogger with guts calls out this Cramer wannabe.

  6. Chuck Ponzi says:

    Carlwied,

    I’d like to see that graph going back to 1800 or so. I’d guess that Gold was “undervalued” for about 99.99% of the time according to Edwards.

    Like the NAR? No way, this guy is raving lunatic, even compared with that lunatic David Lereah.

  7. mgnagy says:

    I’m assuming 1.00 is defined by some sort of classic, “X percent of your currency is backed by gold” rap. For me, this graph is not any sort of surprise, especially since the US is obligated to print more FRN in support of oil sales (meaning AU extraction can’t pace USD output. With a view from here in Texas, the “attitude” adjustments around Q4 of 1974 and 1980 seem most telling.

    It would be interesting to see an additional lines for total dollars in circulation, _actual_ oil sold, and price per barrel as part of an overlay.

    And the obvious question, “Adjust for inflation, or not?”

    I’m aligned with Adult Franklin411: Chart needs a hug.

  8. Free Market Extreemist says:

    Insanity – Accoriding to his graph gold would need to Quadruple in order to be priced farily.

    How is this man employed?

  9. zebov says:

    If he would have put that black line at about 0.4 or so maybe he could convice some folk… but this just looks silly.

  10. patient renter says:

    I’m sure gold is cheap relative to plenty of things. But is there any significance?

  11. thfiv says:

    I am making money GLD, GDX, GDXJ, DGP, SGOL, IAU, PSAU and AGQ are all doing better than Barry’s holdings.

  12. ben22 says:

    I’m not sure about this….imo gold is a physchological trade and not much more, it seems the DSI on gold is illustrating this well the last several months, especially the last month….one could also determine that gold is very expensive today by using the CPI. Is that a crazy way to determine golds real “value”?, well….. maybe, but no crazier than what Edwards is doing here.

  13. Adult Franklin411 says:

    There’s a lot going on here but it helps if you know your history. Before TARP was passed and the Fed added a trillion to monetary base, the gold bugs were out in force. Long gold positions were big with speculation about armageddon or at least s/t deflation followed by l/t (hyper)inflation. So in the run-up to TARP, ZIRP and the huge bump to the Fed balance sheet, the ratio goes up temporarily from 2007 to Q4 2008 when you get the ski jump.

    In the late 70s you see gold take off as an inflation hedge with an arguable speculative bubble peaking around 1979, right when Volcker was named Fed Chairman. Then the ratio comes down to about .40 and continues diluting through the Greenspan Era.

    This chart goes to a core question a lot of people have been asking this year: is the expanded money supply feeding a bubble in the stock market and in commodities like gold?

    To me this chart screams lurking inflation and the need for tough Volcker-on-steroids medicine at some point in the future. Maybe we should start calling Greenspan “The Great Can Kicker” ‘cuz that’s what he did.

  14. Clem Stone says:

    Reminds me of those ads on TV: “The more you spend, the more you save!”

  15. Adult Franklin411 says:

    One of the fascinating aspects of the past few months is the lack of equilibrium thinking with respect to what happened to the trillions of dollars in government money that has been spent to defend the bondholders of mismanaged financial companies. Almost by definition, money given to corporations will show up most quickly as improvements in corporate earnings, and then slightly later, as executive compensation. A few pieces came across my desk last week, hailing the ability of the corporate sector to bounce back from the recent economic downturn even though revenues have continued to suffer and employment has been steeply cut. Why is this a surprise? Where else could the money have gone? Labor compensation? It is truly mind-numbing that a moment after a temporary surge of trillions of dollars, borrowed and tossed out of a helicopter (though to specific corporations and private beneficiaries), analysts would hail a subsequent improvement in corporate results as evidence of “resilience.”

    John Hussman, http://www.ritholtz.com/blog/2009/12/reckless-myopia/

  16. superman2 says:

    useless garbage– gold is allways cheap acording to this. hard assets really has the momo

  17. Why is it that gold haters almost always have more zeal (but not necessarily correctness) in their arguments than gold bugs? That is a puzzle of human nature that I’m going to spend many years thinking upon

    BTW, I finished reading the Sirens of Titan this weekend and what I said about this market being a Vonnegut market became even more so by the end of the book. Somehow I think this market is serving someone on Tralfamadore in some way or another ;)

  18. Adult Franklin411 says:

    Better Tralfamadore than Cthulhu. Course, the Vogons might show up at any minute so have your towels handy.

  19. RW says:

    Try redacting the period from 1900 to 1971 when gold price parity with the dollar was strictly regulated by government (1971-75 floating but still pegged to gold) and then normalizing the entirely anticipated spring-back from restraint for the decade thereafter to 1985. Not a particularly impressive chart regardless of how you define “cheap.”

    Gold is a psycho-play: If enough folks come to fear fiat currencies then more money can be made on the play but there is not enough gold mined in all of human history to settle a fraction of yearly global trade transactions much less global debt burden so any notion of gold-as-currency is simply absurd: It’s a play, that’s all; keep it tactical and keep it smart (oh hell, okay yeah, stash some coin in the locker along with the shotgun shells, beef jerky, sterile water and ky-jelly – things are getting weird out there).

  20. IvoZ says:

    To all the “gold is a psycho play” guys: What about other “real” investments like equities? No effect of “con”-fidence there? How much of the moves are due to fundamentals? What is the role of perverse short-termism and myopia? How about predictable crashes vs. real discounting as mentioned by John Hussman? Any investment is at least 50% psycho play anyway and has become almost 100% based on “confidence building” and fake “green shoots” or “GDP growth” recently.

    Gold has had the role of bank reserves. When reserves are more than doubled in a short time, then be no surprised if gold doubles. I have seen studies that if gold is to be priced according to the level of reserves it could easily reach anything between $3000-$10000. This is not the first fiat money experiment in humany history, so be not surprised if it fails again.

  21. Gregor says:

    The conclusion is that gold is cheap, which does not neccessarily mean you should buy some. Maybe it will only get cheaper.

    Gold is also insanely expensive when compared to 1MB of computer storage, but that does not imply that the price of gold will fall.

  22. Since the end of Bretton Woods in 1971, gold has had no relationship to the monetary base, so any comparison is meaningless. Further, gold is mostly a useless element, having no real value. The spike in price has nothing to do with utility or with money. It is a classic example of the “greater fool” theory. Eventually, people again will realize this stuff pays no interest and costs money to store, insure and ship — a wasting asset.

    Would anyone like to buy some tulip bulbs?

    Rodger Malcolm Mitchell