Is Gold Undervalued or Overvalued
Gold price had increase steadily start from 1955 with only $35 until current gold price with $1100 plus. The most important thing is gold price is forecast will break $2000 level in 2010. Recently, George Soros had bought large sum of gold through his managed fund. secondly, demand from China and India is gradually increasing as their nation economy increase by near double-digit annually. Thirdly, investor start to look for hedging against green note after the subprime crisis happened in 2007.
Since gold price seems to have good prospect of increasing, so does the recent gold price is too high or too low? In other words, we want to know whether it is undervalue or overvalue. According to commodity investor, Michael Maloney, current gold price is still undervalue. Value of gold can be calculated by using Dow/Gold ratio, Dow Jones Index divided by gold price.
If you divide 10567.33 by 1106.80, which is recent DJI and an ounce of gold price, you will get 9.54. This means you need 9.54 ounces of gold to buy 1 share of Dow Jones. Any ratio below 5 means gold is overvalued and any ratio above 8 means gold is undervalue. Ratio between 6-7 is consider reasonable buy. So with current ratio of 9.54, gold is still undervalue.
Michael Maloney, commodity investor said that gold price will reach $10000 per ounce in the future as long as US government continue print its money without restriction. Michael Maloney is Robert T.Kiyosaki’s advisor on gold and silver investment. He owned GoldSilver.com which buy and sell gold and silver.
Overvalue from my point of view. I think 1g is around RM 110 or less.
Just my 2 cents. ^^
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As of my opinion, it is still overvalued.
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Hopefully it will go down less then RM 100 per gram. Then i shall return into the gold investment industry. Lolx…
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This is a wise way to calculate the value of Gold. I am glad you shared this with us. It was interesting to know. Thank you!
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