### The Golden Constant

TR

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

August 4, 2015

H/T

**Abstract: **

In *The Golden Dilemma*, Erb and Harvey (2012) explored the possible relation between the real, inflation adjusted, price of gold and future real gold returns. This update suggests that the real return of gold over the next 10 years could be about -3% per year if the real price of gold mean reverts or -11% per year if the real price of gold overshoots and declines to previous low real price levels. This view reflects a “golden constant” hypothesis that inflation is the fundamental driver of the price of gold. Of course it is possible to entertain other hypotheses. A “golden constant” perspective suggests a fair value price for gold of $825 an ounce and a possible overshoot price of $350 an ounce.

Related SSRN papers:

### The Golden Constant - Introduction

Erb and Harvey (2012, 2013) observed that a common argument made for investing in gold in that it is an inflation hedge, a “golden constant”. One way to think about the golden constant perspective is as a collection of statements that assert that: 1) over a long period of time the purchasing power of gold remains largely the same; 2) in the long run, inflation is a fundamental driver of the price of gold; 3) deviations in the price of gold relative to inflation will be corrected; and 4) in the long run, the real return from owning gold is zero. There are at least two ways...