Gold trades at or above its long-term theoretical price throughout every bull market. The current price of gold is $3,868, which is more than the theoretical projected price.
Gold Hits Record High
With prices for gold reaching $4,000 per ounce for the first time ever, the metal is experiencing an incredible 2025. To date, the yellow metal has increased by more than 50%. Is this a time for investors to take stock and reconsider?
While the rise has solid fundamentals, the margin of safety is becoming less, and gold is now trading near its fair value based on the global money supply, according to DSP’s Netra study.
A lower US dollar and central bank purchases are the main drivers of the yellow metal’s bull run. “Gold trades at or above its long-term theoretical price throughout every bull market. According to DSP’s most recent market intelligence report, gold is now trading at $3,868, which is higher than the measured theoretical price.
Gold-Silver Market Insight
According to DSP’s model, gold traded 40% higher than its theoretical value in prior cycles. Therefore, investors confront a typical risk-reward conundrum, even if additional gains cannot be ruled out. To rebalance their portfolios, investors who are significantly overweight in gold can think about reducing their exposure by 5% per week and selling into strength between $3,860 and $4,000.
Conversely, silver continues to provide relative value. It is now trading below its predicted midpoint of $64 at around $47 an ounce. According to the research, “it is good to take some gains off from now (around $47) to near to the low end of $53.”
It is interesting to see that gold is now performing on par with stocks. Its compound annual growth rate (CAGR) over the last ten years is getting close to equity-like returns. Investors must keep in mind, though, that every bull market has its stages.
Gold Rally Risks Ahead
Gold had steep declines of 15 to 25 percent even during previous upcycles. Due in large part to forced selling by leveraged investors, the previous significant correction in 2008 witnessed a 26 percent decline during the global financial crisis.
The next leg of the gold rally might be unpredictable since it was based on a combination of institutional purchasing, currency weakness, and economic uncertainty. The gold bull run is still going strong, but there will probably be significant pullbacks. Such drops may provide more favorable re-entry possibilities for patient investors.
Investors in gold must exercise caution while maintaining optimism. According to Netra, it could be time to say “thank you, but no thank you” when the trend is favorable to your portfolio but the margin of safety is being reduced.