GoldNuggets — Valuations in Focus

GoldNuggets Digest: a detailed look at our gold valuation indicators, approach + methodology, and key underlying concepts...

The GoldNuggets Digest is our weekly publication. It contains "nuggets" of Charts & Research (on gold, precious metals, and macro) which we think will be interesting and useful for investors.

>>> Valuations in Focus: this week I’m going to provide some insight into how the gold market valuation indicators work — because the conventional wisdom is that it’s hard/impossible to put a value on gold + I’ve had a few questions about it recently, so I will explain! :-)

---

The Composite Valuation Indicator

• First up is the big beast itself: our Composite Gold Market Valuation Indicator. It splices together 3 key approaches (shown in the next chart), and those approaches collectively bring in information from dozens of different individual data series and sources. (source)

• The key point is that it is fit for purpose (i.e. it helps us navigate market cycles by signaling that the market is expensive around market peaks and cheap around market troughs) and it lines up with the 3 key principles of valuation indicator design (as explained below in the 4th chart).

• As to the current signal, it is telling us the market is expensive, and therefore we should have a greater emphasis on risk management — but as explained in chart 5, we don’t stop there (and it’s only part of the picture).

---

The Components

• This next chart from the monthly pack lays out the 3 key approaches, which are explained in detail below. (source)