Gold Valuation: V2

Considering the recent run-up in gold I have decided to re-evaluate the model I built in early January. Due to the uncertainty and multiple factors involved in assessing the fair value of gold, I have decided to build a normal distribution around the “Fear Premium” which I mentioned in my previous post. Additionally, I would like to change the name of this metric to the “Additional Intangible Value” which holding Gold can bring as an investment since it accounts for more then just fear. To properly account for this “Intangible Value” I am assigning a mean rate of 2.5% with a standard deviation of 1%.

The results of this seem to be in line with current spot prices of gold. This study produces a 90% expected value range of $974-$1347. If this model is in fact accurate, gold’s price rebound may be short lived with another sell off potentially in the cards. Please see Monte Carlo simulation results below.

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