Precious metals have surged in recent months, with the precious metals index (which includes gold, silver, platinum, and palladium) up over 30% in the past year. Gold, the largest component, has risen 37.95% and continues to climb, while silver has had the largest increase at 46.66%, converging upwards with gold to reach 12-year highs.
High debt, uncertainty, and potential new phases of cheap money or low interest rates could explain gold’s rise. However, the accumulated increase is taking on exponential overtones, sparking concerns about whether gold is becoming overvalued.
What is an ounce of gold worth? It's hard to say. The yellow metal has limited industrial demand, mostly from jewellery, investments, and central bank reserves. Unlike stocks, gold doesn’t pay dividends or generate cash flow to evaluate.
However, gold’s unique qualities — including its global recognition, finite supply, position as a safe-haven asset, and utility as both payment and store of value — make it ideal for diversifying portfolios, serving as a strategic asset on the balance sheets of central banks, families and pension plans.
These factors let us estimate a gold price scenario based on the share of gold economic agents want to hold. Key figures include:
• UBS’s Global Wealth Report 2024, which states global private wealth at about $475tn
• The World Gold Council’s estimate of mined gold at 208,874 tons (with a 20% margin of error)
• The US Geological Service’s estimate of 50,000 tons of unmined gold.
Using this data, if 5% of all private wealth in the world were devoted to gold, an ounce of gold would be worth $2,853 (assuming there are 8.3bn ounces of gold in the world, equivalent to 258bn tons).
This figure is dynamic; the percentage of gold held in portfolios could rise and fall with global risks. The US dollar exchange rate and interest rates also play a role. There is a positive relationship between global wealth and gold demand; as economies grow, they allocate more wealth to precious metals, as seen recently in India and China.
