If you’re wondering whether gold is cheap or expensive, we’ve put together a few tips to help you to analyze the price of gold.
As we discussed in previous articles, while we are seeing corrections in the stock market and cryptocurrencies, they are still booming while gold is currently slightly less desired. However, the booms in the stock market are superficial, and cryptocurrency isn’t necessarily stable.
Warren Buffet said it best: “Most people get interested in stocks when everyone else is; the time to get interested is when no one else is.”
This also applies to gold. The best time to buy gold is when no one else is.
There tends to be a mismatched valuation of gold and stocks. Anyone can look at the S&P / GSCI index and see that. This compares S&P to the commodities index.
Take a look at this graph that shows that commodities (when compared to stocks) are currently at an all-time low, over a 65-year span.
So, is there a way to take advantage of the current price of gold compared to stocks?
You Can Buy Gold Low & Sell High
We must remember, though, that the commodities index really measures a mixed basket of unrelated commodities. In addition to gold, the commodities index also contains copper, grain, corn, and other physical items. To get a proper measure of whether gold is expensive or cheap, we must therefore isolate gold from other commodities.
Below, we compare the price of gold to the price of the S&P 500 index over the last 50 years, where gold is in yellow, and the S&P 500 is in red.
Notice that the ratio of gold to the S&P 500 is low, which reflects the multi-year low that gold achieved in December of 2015. In fact, it’s the lowest in 10 years. For the prices to move back to their mean (mean reversion), the gold price needs to increase substantially, or the stock market share prices must collapse.
So, while gold may seem expensive at its current price, especially when you compare it to the $1,100 price tag it had in 2015, it’s still a bargain compared to stocks.
Is the World Running Out Of Gold?
Now that we’ve completed our gold analysis, let’s take a look at the gold supply. In 2020, gold production was 4.6% lower than it was in 2019. While this may be attributed to the Covid-19 crisis, it’s still a significant reduction.
However, many experts believe that gold production will boost quite a bit in 2021, leading to record amounts of gold being mined.
When it comes down to it, gold is a finite commodity. It can’t be grown like wheat or corn, and it’s only a matter of time before we reach peak mining. There is, of course, always the “risk” of locating new gold reserves, but while there have been many cases over the past 50 years where deposits of 30 million ounces ormore have been found, no such large deposits have seen the light of day in the last decade.
Additionally, even if a mining company does find a large deposit of gold, it takes an average of seven years to begin production. On top of that, the labor-intensive production is costly, due to high wages.
It should be clear by now that the price of gold has risen significantly in the last 6 years, despite lulls. If you take a close look at the trends of gold, you’ll notice that all the evidence points to it continuing to gain value and going up in price. That means there’s no time like the present to start buying physical gold.
That’s where we come in. Contact Gold Alliance today to learn more about how you can start investing in physical gold.