Some Thoughts on the Value of Gold

Reversion to the Mean

In an April 16, 2013 Wall Street Journal video interview, Mark Hulbert mentions that a recent academic study places gold’s fundamental value at approximately $800.00 per ounce.(1)

I did some key-words-searches to verify such a study exists, and I found the study to which Mr. Hulbert is referring. The study was conducted by a former commodities trader for Trust Company of the West, Claude Erb and a Finance Professor at Duke University, Campbell Harvey.(2) The study is based upon a time series of rates of inflation as compared to the fluctuations in value of the hedge against inflation (gold). The study puts the mean value of gold, over a long historical time series, at approximately $800.00 per ounce.

It’s also interesting to note, recent industry estimates for the average costs-of-production for one ounce of gold are approximately $600.00.(3) Which raises the question, what premium should a gold buyer pay, to buy the next ounce produced, of a commodity which costs $600.00 per ounce to produce? Or, expressed another way, what is the fair-market (competitive) profit one should expect for producing an ounce of gold?

And, MarketWatch pub. The Wall Street Journal 4/16/2013, at:
2. The Golden Dilemma By Claude Erb and Campbell Harvey Social Sciences Research Network (SSRN) first posted 6/6/12 at:
3. The Production Cost of Gold May Surprise You pub. 4/23/2013, at:

The Bernanke Market

Today, a friend sent me a link to an interesting article (see link below).
In his email my friend suggested that after reading the linked article, I read the first “Reader Comment”. The one from VonMises Jr.

The VonMises Jr. comment mentions Mr. Richard Fisher. Richard Fisher is the President of the Dallas Federal Reserve Bank, and he also sits on the Open Market Committe of The U.S. Federal Reserve Bank.

I’ve been following Mr. Fisher’s speeches for about four years now. Recently he has become very critical of the U.S. Federal Reserve’s Monetary Policy. He has likened the U.S. Federal Reserve’s monetary policy to "Monetary Ritalin" and he has mentioned the difficulties of a monetary policy that lacks a clear exit strategy by referring to the Fed’s Quantitative Easing III (QE III) as the The Fed’s “Hotel California Monetary Policy”. This reference evokes the last lines of The Eagles song, “Hotel California”, which were: