Is There Really a ‘Gold Bubble’? Maybe Not.

Hotair ^ | 05/05/2011 | DirectorBlue

[SeekAndFind]

Brett Arends, writing at MarketWatch, refutes the notion that gold is in a speculative “bubble”. He does so by comparing the current spike in gold prices with other speculative run-ups in recent history.

Gold is in a bubble. Anyone will tell you that. They’ve been saying it since gold was about, oh, $500 an ounce.

But it’s a funny kind of a bubble. It’s the only one I’ve encountered where so few people seem to own the asset in question… During the dot-com bubble, you met lots of people with tech stocks. Taxi drivers told you what dot-coms they owned.

During the housing bubble you met normal, ordinary people who were trading up to expensive homes using adjustable-rate mortgages, buying new condos off plan to flip, and cashing out their fictional “equity” through a refinance mortgage.

But who actually owns gold? I keep hearing about the gold bubble, but every time I ask people if they own any themselves, they say, “no, no, of course not, it’s a bubble.”

Some bubble…

[The accompanying chart] compares the bull market in gold with the last two undisputed “bubbles,” namely tech stocks and housing. It shows the gold price since 2001, the Nasdaq Composite COMP from 1989 to 2001, and Standard & Poor’s index of Homebuilding stocks from 1995 to 2007.

The picture is pretty remarkable.

If gold is a “bubble,” it doesn’t look like it’s peaked yet. Indeed it looks like it might be just about to enter its big, blow-off phase.

Gold is a quirky investment, to be sure, and I’m about the last person to advise anyone on anything when it comes to financial matters.

But one thing is certain: the administration’s policy of “Quantitative Easing” (or, as I like to call it, “Quantitative Bankrupting of America’s Future”) has unleashed the Treasury’s printing press like nothing ever seen in world history.

Trillions in cash has materialized from thin air as the Treasury Department issues IOUs and the Federal Reserve purchases them on the open market. Which, by the way, enriches Goldman Sachs (and other so-called “primary dealers”) with tens of millions of dollars in needless commissions each month.

Until the money-printing stops, until the deficit spending is brought under control, and until the dollar is rescued from the most radical administration in American history, I would hold some precious metals like gold.

It’s a hedge against governmental stupidity — and heaven knows we need it now more than ever.

[Perdogg]

QE3 is now almost a certainty.

[razorback-bert]

enriches Goldman Sachs (and other so-called “primary dealers”) with tens of millions of dollars in needless commissions each month.

What a sweet racket and it is legal too.

[ComputerGuy]

I've seen two TV shows about gold where it was claimed that the total volume ever mined by mankind would make a cube less than twenty yards on a side. Amazing, if true.
My gold-fund stocks have done quite well. Sadly, I have a weakness for numismatic gold, and spend more than I should on the stuff.

[Jagermonster]

Gold is in a bubble based on purchasing power. Think of Buying a decent men’s suit, shirt, shoes, tie, etc as the rule of thumb purchasing power of 1 oz of gold. This has been roughly so for the past century. However, at $1500 an oz, we are way out of that territory.

Buy it as a safeguard, if you want, but not as an investment.

[CIB-173RDABN]

I wonder what would happen if more gold was sold then actually existed? As I understand it, not everyone that buys gold takes possession of it, so it is possible the same gold is sold over and over again.

Or if a dishonest organization purposely sets out to defraud someone else by selling gold they do not have.

I see a lot of post by those that would encourage people to buy gold, why is it so important for these posters to convince us it is such a good thing?

Since I do not know the answers, I will (continue to) not buy gold.

[Gadsden1st]

I think you are spot on. I would never encourage anyone to buy gold. Look how the metals have sold off the past few days. Of course, some (I) would consider this a buying opportunity. That’s what makes a market, and that’s what make some wealthy.

[agere_contra]

Gold and Silver are money. They are a store of value. This means that they will save those who own them from being wiped out in the great dollar devaluation.

Moreover, both metals are currently rising in true buying power (not merely price) with respect to both stocks and real estate. This long-term trend will reverse only when one oz of Gold has a price equal to maybe once or twice the DOW.

This means that Gold is going to increase its buying power by about eight times - probably by 2013.

You do indeed see a lot of posts by FReepers who advise you to buy precious metals. This is because we don’t want our fellow conservatives to be wandering the streets in two years time pushing a wheelbarrow full of Bernanke ClownBucks.

[Daveinyork]

Soros’ hedge fund has been selling gold and silver, according to the Wall Street Journal. Watch for an economy wreaking constriction of the money supply, which will hike interst rates and crash precious metals. Remember 1980.

[martin_fierro]

[Mr. Bird]

During the dot-com bubble, you met lots of people with tech stocks. Taxi drivers told you what dot-coms they owned.

Now that's just silly. I can find as many cabbies who have gold today as had AOL in 1999. The idea that the average Joe held a fortune in tech stocks is just ridiculous and revisionist. The average Joe was benefiting from the dot com bubble through the (false) creation of jobs.

I do not know if gold is a bubble. If it is, I feel sorry for everyone waist deep in it. If it is not, I guess all the gold enthusiasts can get together and trade their gold like baseball cards, if there are so few of them.

[JAKraig]

I do not know if gold is a bubble. If it is, I feel sorry for everyone waist deep in it. If it is not, I guess all the gold enthusiasts can get together and trade their gold like baseball cards, if there are so few of them.

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In my honest opinion it is just silly to think that gold is in a bubble. The Dollar is in a bubble. The dollar will be lucky to have half its value in two years. If that holds true gold will be $3000 in two years.

I don’t know how they are doing it but somebody is manipulating the market. Silver was depressed at $50.00. I’m buying.

If the economy falls apart as the big O wants it to silver will be a good commodity to have to get other things when the dollar is worthless.

Eventually there will be a new dollar standard based on silver or gold or perhaps both, it would be good to have some of it now instead of converting old dollars into new.