Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Is Gold Or Fiat Currency In a Bubble

Commodities / Gold and Silver 2010 Dec 31, 2010 - 08:36 AM GMT

By: Washingtons_Blog

Commodities

Best Financial Markets Analysis ArticleIt is easy to argue that gold is in a bubble.

But as I pointed out last month: Deutsche Bank's head commodities researcher [Michael Lewis] wrote in September:


Gold prices would need to surpass USD 1,455/oz to be considered extreme in real terms and hit USD 2,000/oz to represent a bubble.

* A collapse in the US dollar
* Low or negative real interest rates
* Skitish global equity markets
* Coordinated [as opposed to disorderly] central bank gold sales
* Producer dehedging
* New gold investment vehicles
* Falling mine production and rising costs
* Terrorism & rising geopolitical risk

Bloomberg notes:

Myles Zyblock, chief institutional strategist at RBC Capital Markets, said last month gold may soar to $3,800 within three years as it follows the pattern of previous “investment manias.”

Barron's points out:

Louise Yamada, the eminent technical analyst who for many years worked at the various firms that have coalesced into Citigroup and now presides over LY Advisors, last week remarked in a client note that gold—based on its current trajectory—most likely wouldn't represent a true bubble unless and until it gets to $5,200 an ounce (from its $1,317.80 December-contract close on Friday) within a couple of years.

University of Michigan economics professor Mark J. Perry noted in July that inflation-adjusted gold prices are lower now than in 1980:

Adjusted for inflation, the price of gold today is 41.5% below the January 1980 peak of more than $2,000 per ounce (in 2010 dollars).

Frank Holmes, the CEO of US Global Investors said recently:

“If you take a look at previous cycles, super cycles, we're far from it,” he said.

“If gold were to go to 1980 prices like most commodities have gone to, gold would be over $2 300/oz,” Holmes commented.
WJB Capital Group's John Roque pointed out in May that the current gold bubble is still much smaller than the bubble in the 1970s when priced against the S&P.

MSN's Money Central noted last month:
Brett Arends, a columnist for The Wall Street Journal and MarketWatch, estimated that "individuals bought $5.4 billion worth of gold, and sold about $2.7 billion, (so) their total net investment comes to $2.7 billion" in 2010, through early summer.

Arends contrasted that with the $155 billion they shoveled into bond funds through July. That may be the real bubble.

Arends also concluded that "if it continues along the same trajectory (of past bull markets) -- a big if -- gold today is only where the Nasdaq was in 1998 and housing in 2003."

In May, Arends wrote in the Wall Street Journal:
Before we assume the gold bubble has hit its peak, let's see how it compares with the last two bubbles—the tech mania of the 1990s and the housing bubble that peaked in 2005-06.

The chart is below, and it's both an eye-opener and a spine-tingler.

It compares the rise in gold today with the rise of the Nasdaq in the 1990s and the Dow Jones index of home-building stocks in the 10 years leading up to 2005-06.

They look uncannily similar to me.

So far gold has followed the same path as the previous two bubbles. And if it continues along the same trajectory—a big if—gold today is only where the Nasdaq was in 1998 and housing in 2003.

In other words, just before those markets went into orbit.

Tyler Durden notes:
[JP Morgan's] Michael Cembalest indicat[es] that ownership of gold in dilutable terms (aka dollars), as a portion of global financial assets has declined from 17% in 1982 to just 4% in 2009. And even though the price of gold has double in the time period, as has the amount of investible gold, the massive expansion in all other dollar-denominated assets has drowned out the true worth of gold. Were gold to have kept a constant proportion-to-financial asset ratio over the years, the price of gold would have to be well over $5,000/ounce.


Aden Forecast argued in its November 12th forecast:
Debt is in a mega trend. Eventually, the magnitude of the situation and its repercussions will become more obvious. That’s also why the U.S. dollar will continue to fall because more spending and money creation makes the dollar worth less, and gold will keep rising because it is real money. This is one main reason why they’re in mega trends too.

***

We clearly believe that gold and silver are far from being in a bubble.... The value of the whole monetary system is under question and until this very issue is resolved, gold and silver will prevail.
As I noted last year:

Nouriel Roubini quotes a report from Merill Lynch as follows:

As for all the talk of a 'gold bubble,' it would take a nearly 625% surge in gold to over US$6,000/oz and a flat stock market to actually get the ratio of the two asset classes back to where it was three decades ago when bullion was in an unsustainable bubble phase."

Merryn Somerset Webb argued in May:

You probably think gold is in a bubble. After all, it hit new highs in dollars, pounds and euros this week – and has pretty much quintupled since its lows of 2001.

***

But look at the actual price of gold and it is hard to see real evidence of a bubble. Gold may have hit new highs in nominal terms, but it hasn't come close to hitting its old highs in real terms. Adjust the 1980 high of $850 for US inflation and you get a price of around $2,400 – a level only the most bullish are predicting even now.

Then look to the last few years. The bears would have you believe that the gold price has somehow gone "parabolic". But, in fact, the price in US dollars has only risen around 25% in the last two years.

Marc Faber said in September:

Given all the unfunded liabilities and the money printing in the world and the size of the financial assets in the world, I don’t think we are in a bubble.
(although he warned their could be massive short-term corrections.)

Also in September, James Dines said:

This currency bubble is the largest bubble of all time in history. It is the mother of all bubbles.
If you don't have gold.....you are going to be scre*ed.
The same month, Jim Willie claimed:
Calls of a gold bubble are shallow moronic pontifications, since the sanctioned asset bubble is the mammoth US Treasury variety. It is the last bubble before systemic failure. . . .

The Gold bull will continue as long as the cost of money is negative. Investors flee the conventional paper vehicles like stocks, bonds, and housing since the system is failing and paper money in which values are denominated is fast becoming meaningless.

In September, even Alan Greenspan was singing from the same hymn sheet, saying that “fiat money has no place to go but gold.

In November, Bremer Landesbank chief analyst Folker Hellmeyer argued:

Gold is not in a bubble, silver is not in a bubble, precious metals are in general terms not in a bubble.

***

If there is a bubble, it's in Triple A-rated Treasury papers, whether from Germany or United States. Precious metals are in demand for very simple reasons: We have an inflexible supply due to a lack of exploration and we have an increasing demand due to various factors.

One factor is definitely the debasement of the U.S. dollar. The second aspect is that the global wealth is increasing quickly, in particular in the emerging-market countries. Five billion of the world population are having higher living standards and thus are consuming more precious metals. Thirdly, and that is very important: smart central banks start to accumulate gold rather than accumulate printed paper from the United States.

Peter Boockvar writes this week:

According to Dictionary.com, the definition of a speculative bubble is “a temporary market condition created through excessive buying and an unfounded run up in prices occurs.” If there is one asset that commonly gets described as being in a bubble, its gold but let’s look at its move over the past 10 yrs in perspective compared to other “bubble’s.” Gold at $1400 is up 450% from the Aug ’99 low. From 1982 to 2000, the NASDAQ rose 3000% and the DJIA rose 1400%. From 1978 to 1989, the Nikkei rose 700%. From July ’98 to the high in July ’08, crude oil rose 1245%. From its low in Nov ’01, copper has risen 605%. I’m not calling a bubble in Apple but its up by 4850% since 2003 for the obvious reasons. Thus, just because an asset is higher and has done well for years doesn’t mean its a bubble, YET, and this gold rally which I’ve been bullish on for many years, still has room to run.

And Expected Returns argues:

Gold is not the inflation hedge most people think it is. Here is a data point that will give you some perspective. In 1869, gold traded at $162; in 1969, it traded at $35. How gold hedged inflation in any way over this period of a century is lost on me. It is a fact that stocks and real estate more closely tracked the rate of inflation.

Price movements in gold resemble price movements in stocks. Intense bear markets are followed by spectacular bull markets, which culminate in a spike move fueled by human emotion. The same 100% moves in real estate that would signal a bubble of massive proportions are normal moves in gold. While the price movement of gold in absolute terms is important, the price movement of gold expressed in relation to time is even more important. A 100% rise in 5 years means nothing, although a 100% move in 2 months means everything. Everyone invested in gold should be more focused on time.

Each asset class moves to its own rhythm. To say that gold is a bubble merely because it has risen 6x is just plain ignorant. Gold has always shown that it is an asset that lies dormant for decades, only to experience the biggest moves in the shortest amount of time. There is no reason for me to believe that "this time is different." Gold has yet to do anything but trend upwards in a classic bull market formation. If and when the trajectory of the rise steepens, that will be the time to start thinking about getting out.

For extensive background information regarding gold, see this.

Note: I am not an investment adviser and this should not be taken as investment advice.

Washington's Blog

Global Research Articles by Washington's Blog

© Copyright Washingtons Blog, Global Research, 2010

Disclaimer: The views expressed in this article are the sole responsibility of the author and do not necessarily reflect those of the Centre for Research on Globalization. The contents of this article are of sole responsibility of the author(s). The Centre for Research on Globalization will not be responsible or liable for any inaccurate or incorrect statements contained in this article.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules