Gresham Investment Management. The Value of Gold LBMA 2011

Transcription

1 Gresham Investment Management December 2005 The Value of Gold LBMA 2011 September 19, 2011 GRESHAM INVESTMENT MANAGEMENT LLC We know commodities. SM Valuation Methodologies Real Estate Comparables How have similar properties traded recently? Replacement What would be the cost to replace the property if necessary? Income What would similar properties cost to rent? 1 Session 2 Douglas Hepworth 1

2 Valuation Methodologies Equity Price/Book How have stocks traded historically relative to their book values? Price/Earnings How have stocks traded historically relative to their earnings? Dividend Discount What is the current value of the future stream of dividends of a stock? 2 Valuation Methodologies Other Fixed Income Principal / (1 + Real Rate + Inflation Expectations + Default Risk) Marxian How does the use value compare to the built in labor cost? Weapons What is the cost to destroy the weapon? 3 Session 2 Douglas Hepworth 2

3 Valuation Methodologies Real Estate Comparables How have similar properties traded recently? Current Price Replacement What would be the cost to replace the property if necessary? Infinite Income What would similar properties cost to rent? Zero 4 Valuation Methodologies Equity Price/Book How have stocks traded historically relative to their book values? Current Price Price/Earnings How have stocks traded historically relative to their earnings? Infinite Dividend Discount What is the current value of the future stream of dividends of a stock? Zero 5 Session 2 Douglas Hepworth 3

4 Valuation Methodologies Other Fixed Income Principal / (1 + Real Rate + Inflation Expectations + Default Risk) Current Price (if Principal = Forward Value) Weapons What is the cost to destroy the weapon? Infinite Marxian How does the use value compare to the built in labor cost? Zero 6 Categories Backward Seeking Forward Seeking Descriptive Forward Seeking Predictive 7 Session 2 Douglas Hepworth 4

5 Trailing 3 Month Change in TED Spread Nominal 3 Month Rates LBMA (LPPM) Precious Metals Conference September 2011 Short Rates % -2% -1% % 1% 2% 3% 8 US Bank Credit % -2% -1% % 1% 2% 3% Session 2 Douglas Hepworth 5

6 3 Month Trailing Inflation Dollar Index LBMA (LPPM) Precious Metals Conference September 2011 Dollar % -2% -1% % 1% 2% 3% 10 Inflation -3% -2% -1% % 1% 2% 3% 4% - 11 Session 2 Douglas Hepworth 6

7 3 Monht Change Non-Commercial Net Futures (COMEX) 3 Month Trailing M1 Change LBMA (LPPM) Precious Metals Conference September 2011 Money Supply -3% -2% -1% % 1% 2% 3% 12 Futures Speculation % -2% -1% % 1% 2% 3% Session 2 Douglas Hepworth 7

8 3 Month Real Rates (Tbills minus CPI) 10 Year Real Rates (derived from TIPS) LBMA (LPPM) Precious Metals Conference September 2011 Real Rates (Long) % -2% -1% % 1% 2% 3% 4% Real Rates (Short) % -2% -1% % 1% 2% 3% Session 2 Douglas Hepworth 8

9 EuroLibor minus EONIA Swap Rate Change in Flows into Physical ETFs European Bank Credit % -2% -1% % 1% 2% 3% ETF Flows 20-3% -2% -1% % 1% 2% 3% Session 2 Douglas Hepworth 9

10 Results Gold Price (Bloomberg Spot) Model Price Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan Conclusions Gold s value is not absolute Gold s relationships to other factors are not absolute The model contains at least two significant flaws 19 Session 2 Douglas Hepworth 10

11 Price (per Ounce or Tonne) Jan-87 Jan-88 Jan-89 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Historical Perspective Freely Traded Gold From 787 BC (Croesus of Lydia) through the Crusades, Gold did not trade From the late 14 th Century until the early 16 th Century, Gold may have traded From the early 16 th Century until 1973, Gold did not trade Since 1973, Gold has traded freely Is that such a good thing? 20 Historical Perspective Freely Traded Gold Alchemy Lead (LME 3 Month) Gold (Bloomberg Spot) Session 2 Douglas Hepworth 11

12 Historical Perspective Policy Perspective Some have suggested that the US sell its gold reserves to reduce its debt That is an ahistorical solution The US should make a two-sided gold market at $20,000 per ounce Suddenly we have a gold backed currency How many transactions would occur Does not reduce the debt, but think about the asset side 22 Session 2 Douglas Hepworth 12