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Gold Value Calculator (Inflation Risk Weighted) PDF Print E-mail
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Friday, 18 March 2011 16:59
bullionPaul Tustain of BullionVault came up with a really cool concept to determine the actual value of gold independent of any central bank manipulation or transient market technicals. Gold's essential role, other than as money itself, is as insurance against inflation in a given currency. So why not evaluate it like insurance? To that end, he developed a spreadsheet to calculate gold's present value on a risk-adjusted basis just as an actuary would value insurance. All you have to do is plug in what you think the risk of inflation will be, and out will pop the risk-weighted present value of gold. I've adapted this method into a convenient online calculator for you:

Benchmark (cost of a good suit) calculated from Google shopping results
Current gold price current BullionVault NY buy price
Overvaluation due to currency risk amount that gold price exceeds benchmark
Period (years) of devaluation reduce if you think hyperinflation comes sooner

Aggregate Inflation % % % % % % % % % %
Inflation Rate
% % % % % % % % % %
Expected Gold Effect % % % % % % % % % %
Gold Price at End
Benchmark at End
Weighted Price
Opportunity Cost/Annum % % % % % % % % % %
Discounted Gain/Loss
Discounted Price

Risk-Weighted, Opportunity-Discounted, Current Fair Value of Gold Given Your Inflation Expectations:

That's not the future after-inflation value, but the current fair value given the stated inflation expectations. That's an important distinction because the future price will be this value times the aggregate inflation. Instead, the value provided by this calculator should be compared to the current market price of gold to determine how over- or under-valued it currently is. E.g. using the current inflation assumptions, gold is
-valued by
. It should
by this much to be a fair value given the presently predicted currency risk.

For more information about how these calculations are performed and why you might expect inflation and gold to go much higher, I highly recommend viewing Paul Tustain's video presentation.

I've modified Tustain's original spreadsheet a little bit. He used 13 divisions while I shortened it to 10 in order to fit it into the web page (it's still a little tight). But as long as the probabilities still add up to 100, this shouldn't impact the accuracy very much. I've adjusted his assumptions very little in order to fit into my format and still predict the same valuation as his original spreadsheet does.

Tustain's assumptions are actually pretty conservative with the highest probability at around 6% annual inflation. That's a very tame rate considering what it was in the 1970s and given our current debt and monetization outlook. It would not be radical to adjust those probabilities upward quite a bit and still be in the mainstream. Of course, I would adjust them upward a lot! I expect hyperinflation to set in by the end of 2016. On the other end of the spectrum, Ben Bernanke would have us believe that the Fed can control inflation at around 2%. So what would be the fair value of gold given these different assumptions? Click below to find out:


* These are of course my best guess as to Bernanke's assumptions based on his published thoughts and policies

Go ahead and play around with the values yourself to establish what you think the gold price should be. The most important line is your estimation of the probability for the annualized inflation rate in the line above it. In order for a change in any form field to take effect, you just have to take focus out of that field, i.e. click anywhere else on the page. Please add a comment through the Facebook social comment box below to share what value you think gold should be based on your best assumptions.

And if you now feel compelled to buy gold (you should!), I highly recommend BullionVault for secure, allocated storage in either an American or European (for country diversification) vault. Silver is also an excellent investment with similar inflation insurance qualities. If you open an account with BullionVault (no commitment necessary), they will give you your choice of either a free gram of gold or a free ounce of silver just to try it out! You'd be crazy not to!

If you prefer to keep your bullion in your own possession (a bolt-down safe is recommended), then your best bet is SilverSaver, where you can accumulate small amounts of silver or gold at a time in an American vault, and then accept delivery of your bullion inexpensively once you have enough to justify a shipment.

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Last Updated ( Tuesday, 12 May 2015 14:44 )
Buy gold online - quickly, safely and at low prices
Buy gold online - quickly, safely and at low prices
SilverSaver(R) - Save Physical Silver and Gold
SilverSaver(R) - Save Physical Silver and Gold