In reading Campbell Harvey’s research on gold, I thought the following 3 charts were most interesting.
1. the real price of gold in the last 200 years
- the current period of price surge of gold has been extraordinary, even dwarfing the gold bubble in late 1970s. The #1 fact to bear in mind is gold price will eventually tumble in a very big way – it’s fool’s game that you think you can time the market.
2. how the gold price is related to real interest rate
- in my mind, I always think real interest rate plays a bigger role in determining the price of gold than any other factors, incl. inflation.
3. three elasticities of gold price: a. jewelry demand; b. investment demand; c. technology demand
- jewelry demand responds negatively to gold price: as price increases, fewer people can afford it in countries like India and China, where gold jewelry is popular.
- the waning jewelry demand is more than offset by increasing investment demand, especially in the age of ETFs.
- technology demand (or rather supply) responds to gold price very slowly due to the fact innovation in mining gold takes time, but eventually it will catch up.