The Shadow Gold Price: Research From QB Asset Management ~ market folly

Thursday, April 1, 2010

The Shadow Gold Price: Research From QB Asset Management

Today is a bit of a 'document dissemination' day here at Market Folly and we wanted to highlight two pieces from Lee Quaintance and Paul Brodsky's QB Asset Management regarding gold. Below you'll find Nouriel Roubini's argument, "The New Bubble in the Barbaric Relic that is Gold" as well as QB's counterargument to Roubini's points. But first, we'll begin with QB's stance on the precious metal through their original research.

Their research, entitled "The Shadow Gold Price" focuses on the hotly debated precious metal of ages. The first thing you'll notice about this piece is that it is dated November 2008, right in the heart of the crisis. What's intriguing here is that they take a look at the current monetary system and compare it to one anchored to gold. Elaborating on their research, they then go on to develop the shadow gold price (a hypothetical intrinsic value for money/gold). Lastly, they apply this shadow gold price to the US equities market to establish relative value. In the piece, they also made the case for buying equities "hand over fist" which obviously turned out to be an excellent market call.

Overall, QB concluded that there is extraordinary risk in holding paper money and long term bonds. (We've long noted how many prominent investors have at some point been short long term bonds in one form or another). Additionally, they felt that commodity markets were cheap across the globe in nominal terms back then. While the letter itself is dated, the fundamental research and theoretical framework are still very relevant and worth reading.

Embedded below is QB Asset Management's research, "The Shadow Gold Price":

You can directly download a .pdf here.

Then, turning to more recent research out of QB Asset Management, we see that Lee Quaintance and Paul Brodsky have penned a response to Nouriel Roubini's December 2009 report on "The New Bubble in the Barbaric Relic that is Gold." QB takes issue with Roubini's comments, arguing that "gold's terminal value in this cycle will be multiples higher than current pricing." Below you will find a document that both presents Roubini's argument on gold as well as QB's counter-argument in a fascinating 'back and forth' style debate which we highly recommend reading:

You can directly download this .pdf here.

No matter your viewpoint on this often talked about precious metal, you have to admit that there has been a massive amount of in-depth research and rational arguments made on both sides of the coin (no pun intended) from a fundamental standpoint. If you're looking for even more resources, we've posted up a plethora of gold related hedge fund research and below you'll find the archives:

- Societe Generale's research: gold as an insurance policy (& when to sell it)
- An in-depth look at John Paulson's new gold fund
- The dynamic between gold, the dollar & gold equities
- Global macro hedge fund Woodbine Capital's thoughts on gold
- John Burbank & hedge fund Passport Capital's rationale for owning physical gold

And if technical analysis is more your style, you can head to a recent video analysis of gold here as well.

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