Is gold value too excessive or is it nonetheless low? Aswath Damodaran finds out utilizing 2 metrics
Gold’s value has soared over 57% by October and peaking above $4,000 an oz this 12 months, reaching an inflation-adjusted all-time excessive, constructing on a rebound that started in 2022. That is notable given the simultaneous sturdy efficiency of inventory and bond markets, making 2025 a 12 months the place gold has defied typical expectations of lagging behind monetary belongings.
Damodaran warned that gols’s present valuation calls for a deeper look past mere value ranges to grasp if traders are paying a premium that historical past would possibly name into query.
Gold has lengthy been a refuge for traders, enjoying shifting roles as a commodity, forex, and collectible. Damodaran noticed that gold’s worth is in the end tied to its standing as a collectible, since not like monetary belongings, gold doesn’t generate money flows that present a baseline for valuation. Its value is subsequently pushed largely by provide and demand dynamics, usually swayed by temper and momentum available in the market fairly than fundamentals.
Assessing gold’s valuation utilizing 2 metrics
Damodaran centered on two key valuation approaches to find out if gold’s value is justified or inflated: its ratio to inflation (through the Client Worth Index) and its value relative to silver.
Gold-to-CPI ratio
By evaluating the gold value to the CPI index, Damodaran calculated a ratio of 17.81 in October 2025, a determine far above the historic median of round 3. This stark deviation alerts potential overvaluation, even when accounting for present market circumstances. Nonetheless, he additionally notes that low rates of interest and subdued inflation over the previous decade may skew these historic medians, that means the context issues.
Gold-to-silver value ratio
The gold-to-silver value ratio was at 84.73 in late October 2025, considerably above the historic median stage of 57.09. Whereas gold and silver costs usually transfer in tandem, this disparity suggests gold could also be overpriced relative to silver, although this relationship is much less dependable for declaring outright overvaluation.
What drives gold costs?
Gold costs are influenced by three key components, Damodaran defined, which embody inflation, fear-driven crises, and actual rates of interest.Inflation: Gold traditionally acts as a hedge in opposition to surprising, excessive inflation fairly than reasonable inflation actions.Crises worry: Gold’s safe-haven standing manifests primarily in catastrophic financial crises, with value spikes correlating modestly to fairness market worry however much less so with bond market threat.
Actual rates of interest: Larger actual rates of interest enhance gold’s alternative price and weigh on costs, whereas low or detrimental actual charges gas value beneficial properties.
“Gold is usually touted as a hedge in opposition to inflation and crises, however the proof from historical past is nuanced,” Damodaran mentioned. He concluded that gold’s latest value beneficial properties could mirror a distinct segment market enlargement pushed by elevated investor worry of bubbles and financial uncertainty. Notably, gold’s decade-long value rally, practically quadrupling from round $1,060 an oz in 2015 to over $4,000 now, challenges conventional valuation metrics and suggests a attainable structural shift in demand.
“Buyers who add gold to their portfolios due to the safety it presents ought to acknowledge it extra akin to purchasing insurance coverage in opposition to excessive occasions, and extra helpful if the majority of their wealth is in monetary belongings,” mentioned Damodaran.
As Damodaran noticed, “Some undoubtedly simply obtained fortunate to be on the proper place on the proper time, however some had been prescient in detecting a shift available in the market vibe, particularly in 2025.”
“If Jamie Dimon and Ray Dalio really imply what they are saying about markets being a bubble, wouldn’t it not make sense for them to carry gold?,” mentioned Damodaran.
Additionally learn | Aswath Damodaran flags a “pretty extremely valued” market, lays out 5 methods traders can reply
(Disclaimer: Suggestions, solutions, views and opinions given by the specialists are their very own. These don’t characterize the views of the Financial Occasions)
