The Price of Gold: A Global Required Yield Theory
AbstractWe construct a gold valuation theory based on viewing gold as a global real store of wealth. We show that the real price of gold varies inversely to the stock market P/E and thus is a direct function of a global yield required to achieve a constant real after-tax return equal to long-term global real GDP per-capita growth. We introduce a new exchange rate parity rule based on the equalization of inverse stock market P/Es (required yields) across nations. Foreign exchange affects the price of gold to the extent that required yields and purchasing parity equalizations do not take place across nations in the short run. A quarterly valuation model is constructed using concurrent economic data that is within 12% mean percentage tracking error from real U.S. gold prices from 1979- 2002. Several major world events have had a large but fleeting impact on gold prices.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0403003.
Length: 29 pages
Date of creation: 22 Mar 2004
Date of revision:
Note: Type of Document - pdf; pages: 29
Contact details of provider:
Web page: http://126.96.36.199
Gold Price; Stock Market; Required yield; Forward Earnings yield; Foreign Exchange; P/E; Price-Earnings Ratio.;
Find related papers by JEL classification:
- G - Financial Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-28 (All new papers)
- NEP-HIS-2004-03-28 (Business, Economic & Financial History)
- NEP-IFN-2004-03-28 (International Finance)
- NEP-RMG-2004-03-28 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Lant Pritchett, 1997.
"Divergence, Big Time,"
Journal of Economic Perspectives,
American Economic Association, vol. 11(3), pages 3-17, Summer.
- Christophe Faugere & Julian Van Erlach, 2004.
"A General Theory of Stock Market Valuation and Return,"
0403004, EconWPA, revised 17 May 2004.
- Christophe Faugere & Julian Van Erlach, 2003. "A General Theory of Stock Market Valuation and Return," Finance 0311005, EconWPA, revised 17 May 2004.
- Dipak Ghosh & Eric J. Levin & Peter Macmillan & Robert E. Wright, 2000.
"Gold as an Inflation Hedge?,"
Discussion Paper Series, Department of Economics
200021, Department of Economics, University of St. Andrews.
- Robert B. Barsky & Lawrence H. Summers, 1990.
"Gibson's Paradox and the Gold Standard,"
NBER Working Papers
1680, National Bureau of Economic Research, Inc.
- Thi Hong Van Hoang, 2012. "Has gold been a hedge against inflation in France from 1949 to 2011? Empirical evidence of the French specificity," Working Papers 12-05, Association Française de Cliométrie (AFC).
- Dirk G. Baur & Brian M. Lucey, 2010.
"Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold,"
The Financial Review,
Eastern Finance Association, vol. 45(2), pages 217-229, 05.
- Dirk G. Baur & Brian M. Lucey, 2007. "Is Gold a Hedge or a Safe Haven? An Analysis of Stocks, Bonds and Gold," The Institute for International Integration Studies Discussion Paper Series iiisdp198, IIIS.
- Baur, Dirk G. & McDermott, Thomas K., 2010.
"Is gold a safe haven? International evidence,"
Journal of Banking & Finance,
Elsevier, vol. 34(8), pages 1886-1898, August.
- Dirk G. Baur & Thomas K. McDermott, . "Is gold a safe haven? International evidence," The Institute for International Integration Studies Discussion Paper Series iiisdp310, IIIS.
- Kannan Thuraisamy & Susan S Sharma & Huson A Ahmed, .
"The relationship between Asian equity and commodity futures markets,"
Financial Econometics Series
2012_07, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
- Thuraisamy, Kannan S. & Sharma, Susan Sunila & Ali Ahmed, Huson Joher, 2013. "The relationship between Asian equity and commodity futures markets," Journal of Asian Economics, Elsevier, vol. 28(C), pages 67-75.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.