sábado, 10 de marzo de 2012

Valuing gold in real terms

Hola a todos, hi folks

Some days ago, a client dis ask me about the gold risks, just because the present situation in Spain and Europe, well, let´s say it is not confortable.

But, to anser this, looks like simple question, first we need to understand that...

Gold is viewed as a hedge against rapid inflation and against the collapse of the banking system, an event that would be expected to have deflationary expectations. That gives gold bugs an each way bet and also makes it hard to interpret the signal being sent by a rise (or fall) in the gold price. It does not help that gold has no cashflows. This makes it very difficult to put a value on the metal in the way that one can suggest a stock with a price-earnings ratio of 50 looks overpriced. It also allows for a wide range of forecasts.


 


Standard Chartered says the superbull case is for $4869 an ounce by 2020. Now nearby $1700.

In the past 5 years, the value increased almost 300%.






Some people – analysts and investors – view gold as a commodity. They try to understand its price movements in the same way they look at those of copper or nickel. While it cannot be said that this approach is wrong, we believe gold is more than a commodity. Gold is money – a very special form of money. There is a demand for gold that inspires people to pay substantially more for it than fabrication demand would suggest. Some would say that this is so because gold is money. To answer this question requires a definition of money. A typical one would be that money is anything that is generally accepted in payment for goods and services and in repayment of debts. The main uses of money are as: a exchage medium, store of value and unit of account. ( I used to remember Mr. Fernando Faces from Instituto Internacional San Telmo, talking about money and his experience in banks).

According to economist Carl Menger, its acceptability in trade is the defining property of money. While money undoubtedly does serve as a store of value and a unit of account, these properties are derivative, not definitional. The reason that a medium of exchange necessarily is also a store of value is the anticipation of its exchange value in the future.

It is gold’s monetary function that drives its prices beyond its relative value as a commodity. Gold’s monetary aspect is particularly appealing during periods of economic strife,especially when trust in paper money wavers. Indeed, the sharp rise in the price of gold in recent years can largely be attributed to its status as a safe-haven currency.

Like any other currency, gold actually has many prices. Thus, saying that gold is too expensive in EUR terms is the same as saying that the EUR is too cheap in terms of gold. Against a broad basket of all major currencies, note that gold’s value has remained remarkably stable over long periods of time.

If we fix our analisys on suppliers...the top miners M&A history




 If we analize the gold miners M&A History we can see this...



There is no shortage of opinion about gold prices and where will head in the future. Standard & Poor’s Equity Analyst Leo Larkin, who analyze gold mining companies and M&A gold data, believes that gold prices will reach $1,900 per ounce by the end of 2012. I´m agree with him, but I still think that will be even nearby $2.000 or even more. While that may seem attractive, it’s only a 6% gain from gold price levels that prevailed in early February 2012.

Diehard gold fans sure own gold already, so for those still asking whether or not to own gold, a better question might be whether gold would help or hurt their portfolio’s overall, risk-adjusted return.


regards from Spain.


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