Abstract
In The Golden Dilemma, Erb and Harvey explored the possible relation between the real, inflation-adjusted price of gold and future real gold returns. This update suggests that the real return of gold over the next 10 years could be about –4% per year if the real price of gold mean reverts, or –12% per year if the real price of gold overshoots and declines to previous low, real price levels. This view reflects a golden constant hypothesis that inflation is the fundamental driver of the price of gold. Of course, it is possible to entertain other hypotheses. A golden constant perspective suggests a fair value price for gold of $840 per ounce and a possible overshoot price of $353 per ounce.
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