How do you price gold? Is there a rigorous pricing logic?

The world has been extremely unstable in the past two years, with many questions about geopolitics, deflation, and the sustainability of the US dollar. In such times, gold becomes a potential safe-haven choice. The most important aspect of any asset is pricing. Pricing gold is a challenging task because its fundamental difference from stocks and bonds lies in the fact that:Gold does not generate any cash flow (Non-yielding asset)。 $SPDR Gold ETF (GLD.US)$$ZIJIN MINING (02899.HK)$

Therefore, youcannotdirectly apply a rigorous corporate discounted cash flow (DCF) model to price gold. Gold’s (cash flow) is perpetually zero; in fact, holding physical gold even incurs negative cash flow (storage and insurance fees).

However, the academic and professional communities have developed a relatively 'rigorous' alternative logic, primarily conducting quantitative analysis from the following three dimensions:

1. The core model replacing DCF: Real Interest Rate Model

This is currently the most scientifically recognized pricing formula in the market. Since gold does not generate interest, the 'opportunity cost' of holding it isreal interest rates。

2. Monetary Base Anchoring

This method treats gold as a 'zero-coupon perpetual currency'.

3. Shadow Exchange Rate

This method considers gold as a kind of 'foreign exchange that does not belong to any country'.

4. Supply and demand marginal cost (Cost of Production)

Although this is not a mainstream pricing method, it is very effective when gold prices are low.

Summary: Where is the 'rigor' in gold pricing?

The pricing of gold isn't based on 'how much money it will make in the future' (DCF), but rather on'how much purchasing power fiat currency will lose in the future'. If you want to build a rigorous model, it usually includes the following variables:

But this is far from being rigorous. There's an argument that says:

It’s more like a'lifetime comprehensive insurance policy'. Normally, you might think the premium (opportunity cost of holding gold) is expensive and the policy useless, but when the building catches fire (war, financial tsunami), this piece of paper becomes the only lifeline. At that point, the price of the policy is determined by 'the most panicked person.'

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