A lot of people have invested in gold ETFs as investment. Is gold an investment product? If it is, surely we should have some sense of how to value it? Now, at the current price of, say, Rs27,000 per 10 grams, is gold  a. Undervalued b. Fully Valued c. Overvalued?

If you have chosen undervalued, what have you based that answer on?

Well, to help your thinking, according to Moneylife research, gold prices are determined by these six factors:

1. Buying/selling by Central Banks

2. Real rate of interest in the Western world, mainly the US

3. Buying/selling for actual use including jewellery

4. Buying/selling by gold ETFs

5. Movement of dollar 

6. Strength/weakness of rupee (in case you are not buying in dollar).

To arrive at a fair price of gold for investment, you need to factor the impact of all these factors and also find a way to put appropriate weights on each of the factor depending on their importance. You can then have a multi-factor model which can value gold. Has anybody done that? Not that we know of. Have the mutual fund managers, which are pushing you into gold, have any sense of how to value gold? How many of these factors do they track? None, as we far we can see. No fund manager has mentioned these factors and their influence on rising gold prices. Do have any other way to value gold, other than these six factors? No.

We cannot value gold rationally. If we cannot value something rationally, it is a speculative trade for us. Surely, that is not the way people see gold when they put their money in gold ETF.