Posts filed under “Inflation”
Is Gold cheap? Pricey? Somewhere in between?
I have a hard time answering that question because I have no frame of reference. With equities, I could look at earnings and/or dividends, sales, book value, etc. to determine relative valuation. With bonds, interest rate, credit rating (and whether its callable) give me some insight into the value.
I have none of that with gold. (Note valuation doesn’t tell me whether to buy it or not, only whether its cheap or dear).
Bloomberg’s David Wilson looks at another standard to value gold: The historical standards for the world’s two largest buyers, China and India. Today, the price of gold for immediate delivery has risen to records in the Chinese renminbi and Indian rupee after accounting for each country’s inflation. (The caveat is gold is priced in dollars).
Wilson references a recent study by Claude B. Erb and Campbell R. Harvey of Gold Prices and valuation:
“Gold objects have existed for thousands of years but gold has only been an actively traded object since 1975. Gold has often been described as an inflation hedge. If gold is an inflation hedge then on average its real return should be zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation.
The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. As a result investors in gold face a daunting dilemma: 1) seek inflation protection by paying a high real gold price that almost guarantees a decline in future purchasing power or 2) avoid gold and run the risk of a decline in future purchasing power if inflation surges.”
Fascinating stuff . . .
by David Wilson
September 20, 2012
The Golden Dilemma
Claude B. Erb, Campbell R. Harvey
Duke University Fuqua School of Business/National Bureau of Economic Research (NBER) Revised August 3, 2012
Click to enlarge: ˜˜˜ Source: Merrill Lynch We have pointed this out before, but its worth repeating: As Merrill Lynch pointed out earlier this week, “the link between inflation and gold is very limited.” The correlation between Gold and Inflation is not what most people believe it to be. This variant belief could be…Read More
The first of the July inflation reports over the next week was just released. Import prices fell .6% m/o/m and 3.2% y/o/y vs expectations of up .2% and down 2.5% respectively. Taking out the influence of food and fuels, prices were still down .4% m/o/m but still up .2% y/o/y. Import prices specifically from China…Read More
Click to enlarge: The Wall Street Journal – Rents Increase as Vacancies Dry Up Landlords boosted apartment rents to record levels in the second quarter as demand from tenants sitting out the home-buying market pushed vacancy rates to their lowest point in more than a decade, according to a report to be released Thursday. Despite…Read More
Here is a twist: We used to discuss how the Fed loved their core (ex food & energy) inflation measures. I termed that Inflation Ex-Inflation, and if you look around TBP, you will see lots of mentions of that measure.
Take a closer look at Energy, one of the biggest non-housing components. As noted this morning, Commodities have entered a Bear Market. Gas & Oil are not contributing much inflationary pressures. If anything, Energy costs now are acting as a drag on Inflation.
Call it Inflation Ex-Deflation (Do you want to guess what that means for the Fed’s love of the Core Inflation (ex food & energy)?
Consider the Federal Reserve inflation target of 2.0%. Jim Bianco notes that inflation is moderate at 1.73%. However, if you take a closer look at the chart below of core CPI — you will see a 2.3% on a year-over-year basis (blue line) and a heady 2.71% on a three-month annualized basis (red line).
Sum it up and it means inflation less energy is largely running above the Federal Reserve’s target.
Energy Now A Drag On Inflation
Source: Bianco Research
More charts after the jump
Click to enlarge: Kudos to Bloomberg’s Dave Wilson for spotting this study last week by Duke University Professor Campbell R. Harvey and his collaborator, Claude B. Erb. They discovered that “Gold’s prospects are less dependent on inflation than on demand from emerging markets.” As the chart above shows, “The relationship between gold and…Read More
Over the years, debate has waxed and waned over the effects of the minimum wage and/or immigration policy on employment, particularly teen/youth employment. When the issue flared up most recently, a couple of years ago, I posted a rebuttal to that argument here, my point being that it was – at least this time around…Read More
Chicago Real Estate Daily – Rents rise again in sizzling downtown apartment market Downtown apartment rents hit another high in the first quarter, and more hikes may be in the offing amid a red-hot rental market. The average effective rent at top-tier, or Class A, downtown apartment buildings rose to $2.50 a square foot in…Read More
Following up on a previous matter, Karl Denninger posted what is supposed to pass for a rebuttal to my recent post on government spending. To my eyes, as Jay Bookman so aptly put it, it looks like “the octopus trick, squirting black ink to cloud your retreat.” True enough. Anyway, done with that discussion. Paul…Read More
Australia’s unemployment rate declined to a one year low of 4.9% in April, from 5.2% in March and as opposed to a rise to 5.3% forecast. However, the data reveals that the decline was caused by an increase in part time employment (+26k), with full time unemployment down (-10.5k). The A$ rose on the news….Read More