This month’s gold chart book looks at the price of gold relative to other investible assets. For each asset, we use data going as far back in time as available. The assets compared include:
- Crude Oil
- S&P 500
- Commodities, as represented by the Continuous Commodity Index
- Residential Real Estate
- Commercial Real Estate
Our summary conclusions are below:
- It is a remarkable period in the gold market whereby it has risen sharply in a recessionary environment that has led to muted increases or declines in most other assets. As a result, gold is trading at substantial premiums to historical ratios against all other assets and at or near peak levels relative to the CCI and residential real estate. Thus, on a relative basis, gold is most definitely not cheap.
- We do not subscribe to the view that “it’s different this time”, that gold is a “must-own asset” or that a hyperinflationary collapse in the U.S. Dollar is imminent. There is always a point in any cycle where investors collectively rotate assets from what is expensive to what is cheap.
- As such, the relative over valuation of gold will eventually be corrected in one of two ways: gold falls more than other assets or gold rises less than other assets. We’d argue the latter is more likely, so we are not calling for a decline in gold.
- Residential housing is cheap. There is no question about it. Whether it has bottomed or gets even cheaper is up for argument. We’ll have more on that topic in future presentations.
DWS Gold Chartbook Sept 2011