Gold May Be Worth Much More Than You Think - Deutsche Bank
Monday August 29, 2016 10:13
(Kitco News) - Gold is kicking off the week under pressure as markets continue to digest last week’s comments from Federal Reserve officials in Jackson Hole, but some analysts think investors may not be pricing the yellow metal properly.
According to Deutsche Bank analysts, there is a correlation between gold prices and level of monetary expansion by central banks, and according to this relationship, the metal should be some $400 higher.
“The balance sheets of the main four central banks [US, China, Japan and ECB] have expanded by 300% since the beginning of 2005. Over the same period as the aggregate central bank balance sheet expanded by 300%, global above-ground stocks grew by 19% in tonnage terms or c.200% in value terms,” the bank’s commodity analysts Michael Hsueh and Grant Sporre said in a report Friday.
“If we were to assume that the value of gold should appreciate to keep the overall value of the big four aggregate balance sheet equivalent to that of the value of the above ground gold stocks, then gold should be trading closer to USD1,700/oz.”
However, the analysts noted that it is not likely the metal will push up to that level in the near term, and may even lose momentum.
"Let us be clear; we are not saying that gold will trade up to USD1,700/oz in the near term, but when viewed against the aggregated balance sheet of the 'big four' global central banks (the Fed, ECB, BoJ and PBoC) the argument can be made if we view gold as a currency, the metal is worth closer to USD1,700/oz, versus the spot price of USD1,326/oz," they said.
“The rate of gold price appreciation is however likely to slow, given that the momentum so far this year has outpaced that of the central bank expansion.”
Gold futures have been under pressure since late last week in the aftermath of Fed Chair Janet Yellen’s comments, which were construed as hawkish by the marketplace. The yellow metal managed to hit a two-month low as the U.S. dollar strengthened, with December Comex gold last trading down $2.30 at $1,323.60 an ounce.