Over the long term, personal-consumption inflation is projected to be at 2%. So if anything there’s not going to be Zimbabwe-like hyper inflation. If that’s the case, then there was no logical basis for hedging dollar inflation by over bidding the value of both silver and gold over the past 10 years.
The SPDR Gold Trust (ETF) (NYSEMKT:GLD) has rallied by 130% over the past 10 years, and the iShares Silver Trust (ETF) (NYSEMKT:SLV) rallied by over 59% in the same period. The rate of inflation has increased by 26.6% over the past 10 years.
Basing the analysis purely on inflation metrics, I believe that both silver and gold have even further downside. Over the past 10 years, both silver and gold should have only appreciated by 26.6% for the store of value argument to work. I believe that silver, therefore, is overvalued by 30%, and gold is overvalued by 100%. The perceived value of both gold and silver should be altered to an investment hedge against inflation. Because inflation is likely to be so low, the value of gold and silver should decline even further over the next two-to-three years.
Goldman Sachs Group Inc (NYSE:GS) could have a bit of difficulty with beating analyst estimates this quarter. The bank doesn’t do very well in periods of extreme volatility. The bank will lose some money from its institutional client-services segment, paired with declining performance fees from asset management, and mark-to-market accounting losses from stock depreciation.
That being the case I predict more downside in the value of gold and silver. The fundamentals surrounding the commodities do not support the current market value.
The article Goldman Sachs Could Miss Earnings This Quarter originally appeared on Fool.com and is written by Alexander Cho.
Alexander Cho has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. Alexander is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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