Despite disappointing US economic growth in the first quarter of 2017, the Federal Reserve has, generally speaking, been quite positive about the economic recovery and that opinion is as a general rule shared by press reporters and investors. It has been sunshine and roses in the Fed´s wonderland. And it seems as if they are right. Seems, because in my quest to find out what is happening below the surface, I came across a curious development. One of those facts that would raise some eyebrows.

Last week, the Fed decided to raise interest rates again, this time from 1 to 1.25%. As we have seen last week (in my article titled “The Keynesian Output Gap Illusion”), this was inevitable according to the Taylor rule, which the Fed still pretends to follow one way or another. Another rate hike later this year is also in the cards. Yet, something surprising happened. Something the Fed would not think possible. And what happened does not bode well for the world’s most important economy.

The last few years have been rather average for gold investors. The gold price tanked in 2013 and ever since the gold price has been mostly moving sideways, fluctuating between €950 and €1100 per troy ounce. Valuing a company is tough, but the basic valuation principles are crystal clear: you value a company by taking the present value of all its future (net) cash flows. The principles of valuation are equally clear in the case of everyday commodities, such as wheat and crude oil, for which a demand and supply analysis will do the trick. But how do you value gold? Deutsche Bank tried eleven ways and reached eleven different conclusions. The German bank arrived at an average valuation of $1,015 per troy ounce (about €900), but with outliers on both extremes.