Hulbert Does Harvey & Erb, Who Did The CPI-Adjusted Gold Price

Much more than CPI inflation needs to be considered with respect to the gold price

Yes folks, it’s the return of the two eggheads (Campbell Harvey and Claude Erb) who first put the scare into gold bugs back in 2013 with the research paper The Golden Dilemma (PDF), which found that as adjusted for CPI, gold was very overvalued.  Enter Mark Hulbert with the updated warning for inflation-centric gold bugs. Gold has no business being this expensive.

I have never understood who would want to be one of these “gold traders” (other than the miners with a need to hedge and bullion banks with a need to hedge and manipulate, ha ha ha).  Why would you be a trader in an element that is a measure or barometer of other items and conditions?  It don’t get it.  I guess slick traders speculate with insurance policies, so why not gold too?  Everything’s a play after all, in the casino.

To answer Hulbert’s points, beginning with the above…

Gold is overvalued by this measure.  But it is an inflation-centric view that got many gold bugs into trouble in the first place.  What we have now is a deflationary environment against which global policy makers are inflating and manipulating their credit systems as a matter of routine.  Witness gold vs. oil, copper, palladium and virtually all commodities that depend on inflationary economic growth spurts for their price appreciation.  Gold is in a bull market vs. these items, and that does imply gold is overvalued (vs. commodities) if one day the pendulum swings from ‘D‘ to ‘I‘.  But right now, gold is retaining relative value in the deflationary backdrop.

Yet gold bulls’ argument isn’t as strong as it otherwise might appear. Because gold’s inflation-adjusted price remains well above its historical average, inflation would have to heat up by a whole lot more to justify gold’s current price, much less a higher one.