Incrementum’s 12th annual In Gold We Trust report analyzes gold primarily as a monetary asset and not as a commodity like say hops or barley.
In its 230-page report, the Liechtenstein-based asset managers believe that gold is in the early stages of a new bull market, “which has been temporarily slowed down by the election of Donald Trump”:
“The expectations of the political newcomer were clearly excessive – as we warned last year – and continue to harbor large potential for disappointment. As pointed out earlier, we can see significant upward potential, especially in the commodity markets, which now command extremely attractive valuations in a historical context, both in absolute and relative terms.
“One of the things we notice across the bull markets of the past 50 years is that, even in its weakest period of increase, gold gained more than 70%. This record supports our optimism for future developments. From our point of view, stronger inflation tendencies or the abandoning of the rate-hike cycle in the US could trigger an increase in momentum of the gold price.”
The Economist has its Big Mac index to rate the over- or undervaluation of currencies, but you have to agree with Incrementum that when looking at a suitable comparison to gold, beer is much more appropriate:
According to the authors Ronald-Peter Stoeferle and Mark J. Valek, a “Maß” beer (one litre) at the Munich Oktoberfest in 1950 cost a converted €0.82.
Last year the price was €10.95 which means you’d get 99 litres of beer per ounce of gold and the annual price inflation of beer therefore amounts to 3.9% per year since 1950.
Historically the median is at 87 litres making the “beer purchasing power” of gold at the moment above average.
When gold hit record highs above $1,900 in nominal US dollars in 2011, an ounce would only get you 138 litres. The thirstiest year was 1971.
Not surprisingly, the peak occurred in 1980 at 227 liters per ounce of gold when gold topped out at $850.
Incrementum does not regard “this exalted level as completely unattainable”:
“Of course, that does not mean that investors with an affinity for gold must step up their drinking game, even if the temptation of a good lager is in the same ballpark as the one for the shiny precious metal.
“It only means that less gold is needed this year to maintain a constant level of beer consumption.”