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(Kitco News) - The value of gold, including what is expected to be mined this year, and the total amount of gold ever mined through 2011, is equal to 13.2% of 2012 estimated nominal world gross domestic product, about $9.7 trillion, say analysts at Briefing Research.

They add this is the highest the ratio has been since 1981 and the third highest since 1970, having reached 18.1% in 1980 at its zenith. The post gold-standard low was 4.0% in 2000. Since then, it has averaged 7.4% since 1970. “That would be equivalent to a gold price today of $999 per troy ounce, a decline of 44% from current prices,” the firm says.

For 2012, the value of annual gold output will likely be 0.23% of GDP at current prices, besting the previous record of 0.22% in 1980. The average since 1970 is 0.11%, which would be equivalent to a gold price today of $884 per troy ounce, they add. They cite data from the U.S. Geological Service, the World Gold Council, the World Bank and the International Monetary Fund as the source for their research.

Analysts at Briefing Research said the data show that gold is currently at a very high value relative to economic output on a historical basis and that the price is heavily influenced by the real interest rate.  

Since real interest rates are negative in the U.S. and in many other countries, that has increased the demand for gold. “Gold is more attractive when purchasing a government bond essentially ensures a negative real rate of return,” they said. “When real interest rates start to increase to normal levels, gold prices should decline and the ratio should decrease.  Our expectation is gold prices will remain high as long as real rates remain low.”

The analysts said there is a counter argument: gold prices are reflecting inflation yet to occur.  As inflation increases, nominal GDP would rise and therefore the ratio would decrease. Briefing Research does not expect any great rise in inflation in the near to medium term, citing other inflation indicators such as Treasury Inflation-Protected Securities, fixed-income prices and professional surveys.

There is one final reason why the ratio might be where it is, the analyst said. “There is always the possibility that the current ratio is the ‘new normal,’” they said.

While some may scoff at that idea, sometimes structural changes do occur. Briefing Research analysts cited one example of a “new normal.”

“Prior to the 1950s, equity dividend yields were always higher than corporate debt yields.  When dividend yields fell below corporate yields, many market participants expected a reversal which has yet to occur,” they said.

By Debbie Carlson of Kitco News dcarlson@kitco.com

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