What is the fair price for gold? In 1974 it was maybe $100. In...

What is the fair price for gold?

In 1974 it was maybe $100. In 1980 maybe $175. So gold was overvalued by a factor of more than 4x.

What is the fair price? Gold stays stable in purchasing power over time so it stays stable compared to a basket of goods. Today the fair price is $850-$900.

But gold is money too. Credit, money supply increase, we had all that under the gold standard too. Gold was base money. In our current monetary system base money (M0) and money supply (probably M2 should be used) run in lockstep. M0 is basically reserves banks have to keep at the central bank. In 1980 M0 and M2 had a perfectly reasonable relationship. Today? Not anymore. Today we have way more base money than necessary due to QE. Banks did not lend because there was not enough demand for credit as the private sector tries to repair balance sheets.
And if we consider the historical gold price to base money relationship the price should be $3000-$4000.

Is that the fair price today? No. Central banks can reverse QE by selling bonds. So the fair price could be as high as $4000 or it could be $850.

Here is the catch: Do you think central banks are able to sell all of their bonds? That will crash the bond market and they will get only fraction for what they paid. 3% interest rise at 30 years means more than 50% loss (implying $2500 gold price).

And that is the reason why the gold price will go higher and higher if long term interest rates rise: Central banks will lose very high sums, trillions, due to their bond holdings, they will be unable to reverse QE meaning high base money supply is here to stay and meaning way higher M2 levels in the future. And it makes perfect sense, in the future central banks will be technically bankrupt and their gold holdings is the only asset that could be offsetting those losses.

That is all there is to know about what drives gold prices.