The gold model shows the average annual fair value for gold in US dollars. The model is not intended to be predictive and does not incorporate future expectations. It is based solely on historical money supply (US dollars) and gold supply data. Nor does the model take into account short term volatility, like those caused by exchange rate fluctuations, for example.
It is important to realize then, that the model is not a tool to predict daily gold prices. It is a method of estimating the average annual value of gold relative to US dollars on a long-term basis which, when compared to the current market price of gold, tells us whether gold is undervalued or overvalued.
Because this model is based on average annual data it is updated once or twice per year and the chart below is always the most recent one I have. Sometimes I use estimates of data that has not yet been released and then make adjustments when the actual data becomes available.
For an in-depth look at how the model is constructed, please see the articles listed below the chart.
The chart below is based on 2013 data for both AMS and gold. The Theoretical Gold Value for 2014 is estimated at approximately $1,020 an ounce and will be updated in early 2015 when the data becomes available.
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