The Gold Report: You prefer to value gold based on its worth relative to other financial benchmarks. Tell us about some of your go-to ratios and why they are meaningful.
Carsten Ringler: I’m looking at different ratios between different baskets of assets like, for example, the gold to real estate ratio. In January 1980, when gold peaked at $850 per ounce ($850/oz), a single-family home in the U.S. was $74,500 and the ratio was 88 oz, meaning it took 88 oz to buy the average home. At the moment a single-family U.S. home averages $237,400, which means you would need 202 oz gold to buy that house in today’s market. Factoring in inflation since 1980 by using the CPI calculator from the Federal Reserve Bank of Minneapolis, gold should be around $2,473/oz. That means gold is very much undervalued.
Another ratio I look at is gold versus the Philadelphia Gold and Silver Index (XAU:NASDAQ), which consists of a basket of different gold and silver producers. I divide the price of this index by the gold price, and the ratio is currently .0417, but at its peak on May 31, 1996, the ratio was 0.38. That means the value of the gold and silver producers has fallen dramatically over the last 19 years, meaning that there’s a lot of upside in precious metals stocks if the market is recovering, perhaps even 500–700% upside.
“Integra Gold Corp. owns a high-grade resource in a mining-friendly jurisdiction.”
And the ratio between the S&P 500 ETF Trust (SPY:NYSE.Arca) and the Market Vectors Junior Gold Miners ETF (GDXJ:NYSE.Arca), a basket of junior gold producers, is 0.095 versus a high of 1.41 on Dec. 6, 2000. That means essentially the same thing. If we are going back to the ratio highs …read more