Tags: Schmidt | gold | S&P 500 | stock

Ned Schmidt: Gold Is at the Levels It Hit Just Before Its All-Time Epic Run Higher

By    |   Friday, 24 April 2015 08:20 AM

The state of the global gold market has returned to the conditions it faced in 2007, when the precious metal was poised just ahead of robust multi-year gains, according to commodities newsletter publisher Ned Schmidt.

Back in 2007, gold finished the year at approximately $830 per ounce before an epic run to more than $1,900 in 2011, noted Schmidt, publisher of The Value View Gold and The Agri-Food Value View reports.

"Imagine you could go back in time so you could buy some investment at a bargain," he wrote in a column published by Financial Sense. "Since we know what happened, which of us would not again buy gold? Well, you are in luck. Gold is now priced relative to stocks as it was in 2007."

Schmidt said his analysis shows the ratio of gold prices to the S&P 500 is now in the low range where it resided just before its breakout. Gold was trading Thursday at $1,187 per ounce, while the S&P 500 was near its all-time record highs after an epic bull market run.

"Why might that be the case? One possibility is that individuals, who tend to be value oriented, realize that gold is cheap given the reckless monetary policies of Western nations and the extreme risks now existing in the geopolitical sphere," he explained.

"Second, the stock mania has been pushed to such an extreme in the U.S. that investors are beginning to recognize the great risk in today's stock prices, and are hedging their portfolios with gold. A third possibility, and one that should not be casually dismissed, is gold is cheap in absolute terms.

Schmidt's long-term value estimate for gold is $1,987, which would be a new high.

Based on his analysis, he believes the current mismatch of gold and stocks prices means that either gold is considerably lower than it should be based on the gold-S&P 500 ratio back to 1945 or that stocks are considerably higher than they should be.

"An undervalued asset needs a catalyst to correct the mispricing. As we look around the world, many potential possibilities exist to be the 'trigger' for higher gold prices. But, not owning gold and continuing to play the greater fool game in U.S. equities does not seem wise given the history of both gold and stock manias."

China may have accumulated a giant gold stash as a tool to help it challenge U.S. global financial dominance, Bloomberg reported.

The People's Bank of China might have tripled its gold holdings to 3,510 metric tons since 2009, according to Bloomberg Intelligence. The U.S. stockpile is the world's largest and is estimated at 8,133 tons.

"If you want to set yourself up as a reserve currency, you may want to have assets on your balance sheet other than other fiat currencies," Bart Melek, head of commodity strategy at TD Securities, told Bloomberg. Gold is "certainly viewed as a viable store of value for an up-and-coming global power."

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The state of the global gold market has returned to the conditions it faced in 2007, when the precious metal was poised just ahead of robust multi-year gains, according to commodities newsletter publisher Ned Schmidt.
Schmidt, gold, S&P 500, stock
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2015-20-24
Friday, 24 April 2015 08:20 AM
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