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.
Now, this is extreme, but... If gold became worth a billion dollars an ounce... who would be able to buy it? Okay, fine. But it is a thought even without such extremes.
ReplyDeleteIf gold, as it is for me, is several weeks of my income an ounce, I think I am better served stocking up on food, goods, seed, tools, and other supplies. Beside knowing how thin grocery stores are actually stocked (a day or three at normal turnover), and that gas prices and a few other things are making the margins disappear which threatens that sector. Gold is for fools and the rich, often the same thing which is why in America, so far, the top lists change often. Our markets do what revolutions used to have to do.
If, on the other hand, like China (or so they say), you have a few billion or even a trillion, go for gold. I still think it is a bubble though. As for the chart not being similar in peaks, I would have to look back at previous gold (and other commodities, like silver) peaks and compare. Comparing commodity markets to stocks is foolish easily. And the house manufacturing industry was a government subsidized boondoggle.
As for who owns gold? The people who have been draining economies dry. Now they are selling gold for that last desperate bid at clinging to wealth by those who are holding onto a seemingly dying dollar. I can see Soros now, telling people to jump off the burning dollar yacht into the safety of the leaden "survival" craft. Lead, gold, what's the difference. Now that they have fleeced the middle class, they are going after the rich. Oh well.
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