Gold Bubble May Be Coming to an End

This article has 25 comments:

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  sliman

  Apr 02 05:15 AM
  The biggest bubble out there is in pundits who use the word BUBBLE every time they talk. Check the supply and demand stats for gold then make up your own mind people.
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  gigem77

  Apr 02 07:04 AM
  The marginal cost of production for crude oil has reached 80 bucks a barrel. Annual gold supply from mines is less than demand (in deficit) and that deficit is being made up by the central banks dishoarding. The point being that there is no bubble in a commodity that is in deficit supply or that has a high marginal cost of production.
  Now let's look at time. Gold is up 34% year over year despite the recent correction. How is the dow doing year over year?
  
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  fxtrader07

  Apr 02 07:34 AM
  the answer to the articles headline question is a simply and sound "NO.". There is no bubble in gold whatsoever, hence it can't come to en end. It just hasn't started. A true bubble can occur only in an asset where there is excessive supply being absorbed by pure speculative demand pushing the asset's value far above its "fair" value. One can use a variety of measures and will end up at different "fair" values, of course. But whatever method is applied: the simple fact that costs of mining the gold rise almost as fast as the price of the metal puts a very strong floor under the current gold price. and it underlines the inflationary environment we are in and which the fed and the govt try to hide at any cost. i may add, that gold is right now sitting barely at half it's bubble price of the 1980s when adjusted just for "offcial" inflation, not to speak of the real inflation!
  Looking for a true bubble of epic proportions? Look no further than government bonds allover the world, but especially U.S. treasuries and Japanese Gov bonds! That's precisely an asset that can be inflated to infinite supply at essentially no cost (and boy, has that supply been inflated over the years!), an asset that promisses little or negative real returns and yet is chased like hardly any other for its perceived "safety". Yet, this "safety" has a 100% probability of disappearing all of a sudden somewhere down the road. Everything else will then go up in value like crazy and then, maybe , we may see a bubble forming in gold. if that event should happen within the next 10-15 years it might propel gold to 5.000-10.000$/oz easily. if it happens later , well, then the numbers may be significantly higher
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  sdavid0419

  Apr 02 07:44 AM
  You must be a republican. Tell them what you want them to believe and then everyone act like its true. Core inflation has remained historically low. Dah! Core inflation is what Bill Clinton did to save social security. No one lives in the core. Everyone with a motor vehicle is seeing inflation higher than ever before in history, now thats a bubble for you. Food prices are rising so fast they aren't putting price stickers on it just bar code so they can raise them several times a day. The new higher cable bill just arrived. My house assessment for tax purposes just reached a number that the market won't support for the 1st time ever. My state legislature just raised taxes higher than ever before. Yesterday the teachers worked to contract in a protest over no raise. Yesterday truckers all over the country parked in protest of the higher fuel costs that make it impossible for them to earn a living. For my money I'd rather hold gold in a bubble than the US dollar that has free fallen in a black hole (I guess thats the opposite of bubble).
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  dieuwer

  Apr 02 08:29 AM
  Usually when people are euphoric about an investment, when people fights to get in and talk about the latest IPO, THEN the bubble stage has arrived. I don't think we are there yet with respect to gold.
  Indeed, there is a lot of bubble talk. However in only one sector there is not: the US Treasury Market. Therefore, I think that it is this market that is actually in bubble land.
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  huangjin

  Apr 02 08:32 AM
  People have less money in their pocket to spend on gold. We aren't experiencing monetary inflation anymore, but rather a change in the supply-demand picture. Developing economies have pushed up the prices of commodities and the higher price will come out of spending on other goods and services. After a few years, supply will adjust and prices will come down.
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  DCM

  Apr 02 09:00 AM
  Dear Readers: I suggest you ignore the comments of Mr. Elfenbein and take note of the comments made by previous commenter’s. Bubble or not, the fact is gold is consistently moving higher you might say from one bubble to the next. There is no end in sight for increasingly higher prices of gold. Ignore this fact and you do so at your own financial peril for all the reasons given by the commenter‘s. I would add that it is not just Americans buying gold! There is phenomenal demand for gold in China for example.
  
  With regard to inflation - maybe, possibly from a strict economic definition, we are not experiencing inflation. However, no one needs to be told that living costs are increasing and a dollar buys less every day. In the past 2-3 years, as net worth has declined, and wages have remained relatively stagnant, living expenses have jumped much higher. The net effect is that most Americans are much worse off today since the Republicans hijacked the country (and the Constitution along with it) and basically handed it over to the wealthy elite.
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  phage_17

  Apr 02 09:13 AM
  Gold prices are still very high relative to the past. Shouldn't mining companies be seeing record profits very soon? Even if gold is only $890 and not over $1000, that is still up a large percentage over just a year ago. Investments in mining stocks, whether individually or in mutual funds or ETFs, should start paying good dividends.
  
  Am I wrong here? Obviously, mining companies may open mines previously closed or increase production under higher prices which could eventually bring supply up enough to make some changes, but how long will that take?
  
  I'm fairly new to this whole game. Am I on the right track?
•  
  bearfund

  Apr 02 10:35 AM
  phage, the miners are exposed to costs. Those costs include oil (not too cheap these days), wages (people who have to buy things like wheat, corn, and heating oil), insurance, and environmental regulations. If the price of gold times the amount extracted rises faster than costs, the miners make more money. I leave it to you to decide whether that's happening. Note that the price of gold in the market is only one factor among many affecting the miners' profits. My take is that if you want leveraged exposure to the price of gold bullion, you should buy it on margin or buy call options. If you want exposure to the profitability of a mining company, you should buy its stock.
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  dmvsmart.com

  Apr 02 10:40 AM

  My Website
  Bingo on the mining companies, they could eventually bring supply up enough to make some changes, just like refineries do the opposite for gas !
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  Blueknight

  Apr 02 12:58 PM
  I concur that there is no bubble in Gold. What about silver? My take is that it is in even shorter supply. Silver production is largely the by-product of gold mining, thus it would seem that as a secondary mining target its price is likely to continue to outpace gold. Any thoughts?
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  mark mchugh

  Apr 02 03:27 PM
  The only reason you wouldn't want to hold at least some gold is that you don't believe the dollar will ever reach it's intrinsic value of nothing. The fiat currency trick never lasts for long, because sooner or later, somebody can't resist the urge to print their way out of trouble (like now).
  
  The government can print enough money to fill the grand canyon, but they could not fill an Olympic swimming pool 18" high with all their gold (if they actually still have it).
  
  I would define a "bubble" as anything that's perceived value is far greater than it's actual value. The real bubble is those things in your wallet called US dollars.
  
  
•  
  loaddown

  Apr 02 05:18 PM
  Put your "bubble" where your mouth is:
  
  'Mr. Gold' has a challenge for you.....
  
  "I am offering a $1,000,000USD wager to a financially qualified party that this will occur within the stated time frame. Any party on Bloomberg, CNBC or CNN-Business stating an opposite opinion on the price of gold should be informed of this challenge.
  
  Please communicate to ANY vocal bearish so-called gold expert that I challenge them to put their money on their views.
  
  Any commentator unable to financially meet this challenge should not be opining. If they really knew the gold and currency market they could easily meet the challenge."
  
  "The technical procedure of a serious wager is:
  
  1. Prove you can in fact wage the challenge by an attorney's letter.
  2. Segregate the funds in cash or near cash kind in the hands of your attorney.
  3. Execute an agreed upon binding contract stating the terms of the wager.
  
  (This offer is void in all areas where wagering is illegal if any such areas still exist in our algorithm-geek casino world)
  
  Respectfully yours,
  
  Jim Sinclair"
  jsmineset.com
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  DougM

  Apr 02 11:15 PM
  For everyone saying gold's price is justified by supply/demand imbalance, how much of the "demand" is commercial and how much is just going into the hands of investors?
  
  For everyone saying gold's price is being driven by inflation, has there really been 50% inflation in the past 6 months?
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  DougM

  Apr 02 11:43 PM
  www.research.gold.org/.../
  
  2007 stats:
  2426 tonnes jewelry
  466 tonnes industrial/dental
  656 tonnes investment (including ETFs)
  3547 tonnes total
  
  So it looks like 15% of the demand is essential commercial uses, 20% is hoarded by investors, and 75% goes to jewelry. Sorry, that's not as persuasive as something like food or energy that people can't easily do without.
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  DougM

  Apr 02 11:44 PM
  Should have been 65% jewelry - sorry for the typo.
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  phage_17

  Apr 03 12:06 AM
  Well, I have no claim to expertise, but it seems to me there are problems in the dollar and financial stability. The actions of the Fed and banks of late have been short term fixes trying to keep things together for now with the hope that things will improve before they experience further problems. And it seems further negative statistics still come back at them again and again. Meanwhile, other than a pull out by many investors because gold backed off, what has fundamentally changed?
  
  Are not the factors that drove the price of gold up in the first place up until a couple of weeks ago still there?
  
  As for mining companies, I believe there is room for them to make huge profits. I suppose it still comes down to individual company strengths and weakness, but I believe the better companies are poised to really make a killing in the coming months. So, I'm sticking with my gold investments for the long term.
  
  Call it a beginners viewpoint, and I'm sure I'm still very naive, but that's what I see. Any responses will be welcome.
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  ChrisG

  Apr 03 12:11 AM
  Don't forget that Indians are the largest purchaser of gold, and they do so most typically in the form of jewelry, particularly as a dowry. So much of that 65% jewelry portion is actually for investment/storage of wealth purposes.
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  bm1087

  Apr 03 12:15 AM
  DougM - Word is people (joe retail) are starting to sell their gold jewelry. Hmmm just very similar IMO to when I would sit at Starbucks two years ago and all you would hear about is people talking about real estate. Can a parallel be drawn here? Rather place my bet on oil as all it takes is Iran to start something to send prices to 200+ a barrel.
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  NaplesJack

  Apr 03 12:16 AM
  Gold--Long and Strong.
  Suggest one visits the following web site for an honest asessment of the PM markets
  wallstreetwindow.com
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  fxtrader07

  Apr 03 08:59 AM
  @DougM: well, this is hillarious! Gold has been going down for two decades(!) and only risen over the past 5-6 years. so of course, inflationwasn't up 50% over the past 6 months, but it certainly has been up many times more than the price of gold over the past 20 years. Inflation, btw, is not rising consumer prices! rising consumer prices are an expression of inflation. actual inflation is the expansion of money supply (i.e. paper IOUs) in excess of tangible value created.
  Now, a LOT OF PAPER has been issued at a rising speed while GDP hasn't kept pace at all. And that's the manipulated gdp numbers issued by the Govt which are absolutely bogus and grossly overstate real gdp growth. inflation has been going on silently for decades - the dollar lost about 65% of its purchasing power since gold's bubble-peak at 850 $ in 1980, officially. the real figure should be closer to 88%. that would translate to a price of about 2.300$/oz or 6.250$/oz gold, respectively, today!
  In other words, gold has risen way, way less than prices for fuel, health care, food, education, housing - you name it. the reason: central bank selling and leasing and the fact that it is out of favour with most people as the govt and the fed have succeeded so far to mask the true extent of inflation going on. gold in a bubble? give me a break! when people allover the usa and europe start scrambling for gold and bid up prices, then we may get near a bubble. certainly not when they are trying to sell at the current "high" prices. LOL
  i suggest two links for those interested about gold and inflation:
  
  mwhodges.home.att.net/...
  www.24hgold.com/printa...
  
  those who think gold is in a bubble may want to rethink their assessment.
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  MarkDK

  Apr 03 02:20 PM
  Can someone give me their opinion on the security of holding shares of something like StreetTracks GLD shares, and physically holding real bullion? I
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  Celal

  Apr 03 09:58 PM

  My Website
  Or we may just be seeing the temporary effects of negative gold lease rates. "What is this?", you ask. Heck, I didn't even know there was such a thing until I read THIS.
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  testtagcal

  Apr 04 12:21 PM
  In the interests of full disclosure, I have 90% of my wealth in gold and silver. The big thing with any investment is when to get in and when to get out. I am totally out of real estate and stocks at the moment and my trigger for getting back into those areas, investment wise, will be when inflation is tamed (and no, not that bizarre ‘core’ inflation nonsense reading, nor the other totally bogus inflation figure from the BLS – they should just take the “L” out of their acronym altogether). Inflation will be tamed when the fed stops printing money and hence the dollar stops falling. I don’t see that happening soon. The dow and other indices are being totally manipulated right now and one of my savvy stock broker friends thinks a more realistic figure for the DOW is around 8000, maybe even lower. The bad news is that the higher the price of gold goes, it will indicate that the world is in progressively worse shape, so I kinda hope it peaks around $2000 rather than $5k.
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  uglyowl

  Apr 05 09:00 PM
  "There is no end in sight for increasingly higher prices"
  
  Sounds awfully familiar.