Gold could soar another 4300%


Bubbles happen across a wide variety of asset classes. But they do share quite a lot of common features. One of those is indeed psychological. Investors become so blinded by the huge run up in price that they start having complete disregard for traditional valuation measures. And consequently, even extremely absurd prices seem justifiable.

Take the case of Gold? There is no doubt in anyone's mind that the yellow metal has been on a tear the past few years. And people wanting to jump in on the Gold bandwagon will come up with umpteen theories to justify excellent returns that lie ahead. Such theories have indeed come dime a dozen. But the one that we would like to highlight really takes the cake. A financial portal has put the fair value of gold at, hold your breath, US$ 52, 381 an ounce! This is a whopping 43 times more than the current price. For an Indian buyer, this is equivalent to nearly Rs 8,00,000 per 10 Gms of gold.

The reasoning behind this is pretty simple. If the world were to move back to the gold standard, all the US dollars will have to be converted into gold. The US currently has 13.8 trillion dollars in circulation whereas it admits to having only 261.5 m ounces of gold. Thus, there is US$ 52,381 dollars worth of currency behind every ounce of gold for the US and this thus would be the fair price of Gold.

The argument made in the above example is very simple. And the real world is indeed very complex. But there is no denying the fact that even if one tenth of the target were to be achieved, we are still far away from the peak price of gold. Furthermore, with the amount of money printing happening, the peak price will keep getting higher and higher. Hence, gold may not go up 43 times from here, but it can still give very attractive returns.

source:equitymaster