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Is the gold bubble about to burst?

October 8th, 2009 · Greg Atkinson · 47 Comments

Recently you have probably noticed that gold prices are getting plenty of media coverage and we are often hearing predictions that gold will hit $2000 USD an ounce in the not too distant future. Sadly what is often not highlighted is that gold is rising mainly because the U.S. dollar is falling and that the demand for gold is largely being supported up by investors.

Earlier in the year I said I believed that gold was trading at prices that were too high to be sustained over the longer term and at bubble-like levels. Since that time nothing has happened to change my view and even though a weaker U.S dollar has helped gold shine in some people’s eyes, if we look at gold in Australian dollar terms we can see more clearly how it has fared.

Gold 1 Year Spot Price in Australian Dollars (Oct 2009)

1-year-aud-spot-gold-price-oct-09

As you can see gold in Australian dollar terms has been falling since it peaked in March and has seriously underperformed Australian stocks in 2009. Unless you were extremely lucky with your timing then the chances are if you bought gold using Australian dollars this year then you are now sitting on a loss.

At this point let me make it quite clear that I am not offering any form of investment or financial advice, I am simply outlining my view of where I think gold prices are headed in Australian dollar terms.

Also if you have not already done so may I suggest you read: Investing in gold: a basic guide for investors as this provides some background on gold supply and demand fundamentals.

Knowing that I will most likely end up with egg on my face in some months time let me say that I think gold is NOT the place to be in 2009 for Australian investors and is overpriced at current levels.

I am also sticking by the comment I made in April this year in Are we in a gold bubble? Could gold prices fall?

“My own personal view is that the gold price will fall back just as oil prices did last year, probably not a big fall, but I think the people saying gold will reach USD $2000/ounce soon sound a lot like those calls that oil would reach USD $200 a barrel last year”

Since I wrote that gold prices have slipped back in AUD terms, but I still feel they have further to fall this year.

As much as people try to pretend otherwise the demand for gold is somewhat elastic in nature. In other words as gold prices rise, overall demand falls. This is not a theory, it is a fact and is confirmed by the World Gold Council:

“Investment demand for gold remained very strong in the second quarter of 2009, rising 46% on year earlier levels as investors continued a flight to quality. Overall demand for gold fell back from recent high levels as weak economic conditions and high gold prices combined to impact demand, according to the Q2’09 Gold Demand Trends report published today by World Gold Council (WGC). Although gold demand remains very high on a historical basis, total demand in Q2’09 was down 9% on the levels of a year earlier, a 6% decline in $US value terms to $US21.3b.”

What should concern investors is that gold demand is being held up by investors and this means gold is being dug up, stored in a vault and at some point one would assume the people who own the gold will want to sell it, hopefully at a profit.

So for gold prices to remain at current levels or go higher in U.S. dollar terms two things basically need to happen:

  • The U.S dollar needs to keep falling against other currencies.
  • Investors need to keep buying gold or the demand for gold other than for investment purposes needs to pick up.

Let’s put the first point aside for now as it involves getting into the complex world of exchange rates and focus on the second one.

The second point is where the gold catch-22 comes into play. Investors put money into gold because they believe that the global economic outlook is not looking good, but if the global economy is struggling then the demand for industrial & jewellery gold falls.

So as investors increasingly head for the safety of gold their actions actually make gold less safe, because the pool of potential sellers (those who own gold) will at some point be greater than the pool of potentials buyers. Of course the point at which this will happen is almost impossible to predict because it is subject to so many variables.

For example if the global economy continues to show signs of recovery then the number of potential buyers could drop quickly and thus the  point where sellers outnumber buyers would be lowered. (i.e. a lower price point would result)

But don’t take my word for it, have a look at the table below from the World Gold Council and you will see clearly how the overall demand for gold is falling, but investors keep buying nonetheless.

Identifiable Gold Demand

identifiable-gold-demand-q2-2009

Source: World Gold Council (www.gold.org)

I guess there are basically two ways you could look at the data above. The pro-gold crowd would point out how gold for investment purposes is soaring and that if that trend continues gold prices will soar.

When I look at the data I see a bubble forming. The only thing putting a floor under demand is investors whereas the demand for gold for practical purposes is falling. At the moment the point at which sellers outnumber buyers has not been reached, but for how long can investor demand keep growing?

I could be very wrong, however I will not be joining the rush towards gold and much prefer oil as a long term investment play. However I stress that investors need to do their own research, consider a wide variety of views and seek professional advice (if needed) before making any investment related decisions.

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47 responses so far ↓

  • 1 Anon // Oct 8, 2009 at 5:23 pm

    “Is the gold bubble about to burst?”

    Yes. But you never know how far the craziness and mania will go. The gold bulls could push this to 1,500 or even 2,000 who knows.
    I cant believe the gold bulls dont even admit its a bubble arguing gold doesn’t have intrinsic value, or it being the new world currency, fiat money is dead etc. God help gold investors when they begin to head for the exits and sell their gold positions.

    I found this funny:

    “In my opinion, in order to justify gold’s current price then inflation better show up at some point. Further, if inflation does show up there are probably better things to hoard than something that has already risen by a factor of four. Toilet paper continues to come to mind. Just a thought.

    I know this isn’t going to be popular with the gold bugs, but I just call it like I see it. I’m not saying gold is in a bubble, but I certainly have no interest in buying it (again) at these prices. There is serious risk at these levels and that is not something I look for in a “safe” store of value. Maybe that’s just me.”

    http://seekingalpha.com/article/163144-the-bubble-in-gold-debate

    Hey just a side issue – above not advice, only for debating – pls see a financial advisor for decision making and advice.

  • 2 myforwik // Oct 8, 2009 at 6:56 pm

    I think you guys miss the point somewhat. The investors are moving into gold for the long term, many of them believe that massive inflation and possibly even a run on the US dollar is going to occur. Also identifable gold demand is a bit missleading, because it does not count any gold transactions. The exchange rate between gold and fiat money hardly matters if they are buying gold to use it as a currency (see digital gold currency for example).

    This exact same thing was happening just before they pulled the US dollar off gold. Everyone was saying that gold would fall from $30 per oz to $5 or $6 per oz because that was all the jewellery and manufacturing demand was. In reality of course no one could beat the inflation and they all flocked to gold and it went up and up and up and up from $30 to $800.

    I think it wise to remember that the amount of money in the world is so collosally more than the amount of gold, that even a small number of investors moving into it can create a mommoth bull market. If the USD for example was to be gold backed again, the price of gold would have to be about $50,000 per oz. So we are looking at a movement of just 1/50th of the credits, this could happen given all the talk of people moving to having 1/3 of their money in gold etc.

  • 3 Yenomsiondoog // Oct 8, 2009 at 7:44 pm

    The Gold Bubble is not about to Burst. Gold like shares, are long term investments. Although you can hold them for short periods of time and sell when you need to, or sell them when the price is high, it’s up to you. I don’t agree that Gold is a bad investment. The U.S. dollar is falling and the Aussie dollar at present is rising. The U.S economy is collapsing with it’s enormous debt overload. Inflation is rampant, money is becoming worthless. The world at large is investing in commodities. Gold WILL keep rising as time goes by, Aussie gold price will also rise in the future. Maybe 2009 is not the time for Aussie gold to rise but 2010 might be the start of rising Aussie gold prices. The object of any investment is to buy low and sell high, not buy high and sell low -- no one ever made a profit that way.

  • 4 Greg Atkinson // Oct 8, 2009 at 8:11 pm

    I am not saying gold will not rise over the long term but my point has been (and is) that gold at current prices is not in my opinion a bargain or something I would buy into as a long term investor.

    I see Jim Rogers has been saying gold may get to $2000 within a decade which in fact is not saying a lot…a lot of things will probably double in price over the next 10 years. I reckon the price of a meat pie will probably double within a decade and will contain less meat as well ;)

    myforwik you make a good point about identifiable demand but what else can we go on?

    Yenomsiondoog if you look at gold in AUD terms one could argue the bubble has already burst.

    anon thanks for the link.

  • 5 Anon // Oct 8, 2009 at 8:25 pm

    Gold over the longterm -

    Yes its been a fantastic investment in past history :) — NOT !!

    It doesn’t even keep up with inflation…especially if you buy the bloody things at high levels and especially if you hold for the longterm from high levels.

    http://static.seekingalpha.com/uploads/2009/7/10/164535-124721965029684-Mike-Stathis_origin.jpg

    Worst longterm investment ever imo !

    I dont understand why you’d want to use gold instead of cash. If you buy a quality basket of diversified currencies and compound the interest earnt on them (unlike gold where you have fees/holding costs) you will do a hell of alot better over the longterm than buying gold and holding from high levels.

    Hey just a side issue – above not advice, only for debating – pls see a financial advisor for decision making and advice.

  • 6 Greg Atkinson // Oct 8, 2009 at 8:47 pm

    Anon I guess gold is one of those things that looks really good if you look back at a chart and say: “I would have bought then and sold at this point”. But when gold is sitting under your bed you get zip..no dividends, no income and this is what is missing from the charts.

  • 7 Anon // Oct 8, 2009 at 8:56 pm

    “But when gold is sitting under your bed you get zip..no dividends, no income and this is what is missing from the charts.”

    Yep you are exactly right.

  • 8 Anon // Oct 9, 2009 at 12:28 am

    Hey Greg could you possibly do an analysis on where Base Metal prices are headed?
    LME warehouse stock levels are incredibly high and China is nearing the end (if not finished already) of its stockpiling -- not to mention the abysmal state of the Baltic Dry Index.

    Hey just a side issue – above not advice, only for debating – pls see a financial advisor for decision making and advice.

  • 9 Anon // Oct 9, 2009 at 12:52 am

    Investment Strategy Newsletter by Jeffrey D. Saut:

    http://www.raymondjames.com/inv_strat.htm

    Hey just a side issue – above not advice, only for debating – pls see a financial advisor for decision making and advice.

  • 10 Greg Atkinson // Oct 9, 2009 at 7:03 am

    Anon I would love to do an analysis of base metal prices if I knew what was going on :) Every day it seems I read conflicting reports about what is driving prices and it is hard to get what I would call factual information. There is no doubt however that demand is being kicked along by government spending across the world and lower post-boom prices, but how will this demand hold up when governments start rolling back their spending? Also as you mention, how much stockpiling has been going on and how much is just normal pre-ordering?

    To confuse matters further the Baltic Dry Index is being distorted by an oversupply of ships. Just before the GFC hit global trade was going through the roof and so there was a boom in ship building. Well you can’t really stop building ships quickly so although trade fell, a lot of new big ships were (and are) still being launched and still being built. Apparently this oversupply will take some time to work through the system (i.e. old ships will be scrapped, some mothballed etc.) and this situation tends to keep the BDI suppressed.

  • 11 Anon // Oct 9, 2009 at 12:32 pm

    Interesting Greg, I didn’t realise oversupply of ships was distorting the BDI. Its also interesting to note the correlation between the BDI and the stock market index has been negatively correlated since the beginning of the year.

  • 12 Greg Atkinson // Oct 9, 2009 at 1:22 pm

    Anon I read an article a while back saying they expected the shipping over-supply to be sorted out in 2010 sometime if trade picks up. Up in my part of the world (Japan) shipping related news gets more coverage than say in Oz, so I read and see plenty of these sorts of articles/news.

    The BDI has really had me quite confused this year, I thought it might have picked up more by now so at this stage the oversupply of shipping makes some sense, but I also don’t discount the demand for commodities might be slowing.

  • 13 Anon // Oct 10, 2009 at 5:30 pm

    I was watching the Home Shopping Network just then and they were selling gold jewelery of all things.
    They said for women to buy gold jewellery, not just for its aesthetics, but also for its investment appeal.
    They mentioned golds’ good investment potential/history etc.

    lol i’m speechless (for once).

  • 14 Niko // Oct 11, 2009 at 9:42 am

    What do you make of this graph. Gold certainly seems a safer bet now than in the past.

    http://www.kangarootail.com/uncategorized/sp-500-pe-ratio-remains-near-record-high/

  • 15 Greg Atkinson // Oct 11, 2009 at 10:49 am

    Anon when they start pushing gold on the Home Shopping Network then that suggests to me we are in “tulip” territory. But of course as you mentioned earlier, gold could still go much higher simply because more investors join the rush and the U.S dollar becomes weaker.

  • 16 Anon // Oct 11, 2009 at 11:33 am

    “Anon when they start pushing gold on the Home Shopping Network then that suggests to me we are in “tulip” territory.”

    Yes, “tulip territory” -- my feelings exactly.

    Gold seasonality may have something to do with the rise, aswell as manic buying:

    http://www.futuresbuzz.com/gold.html

    It shows big corrections mid-oct. I tend to put more weight into seasonal charts if a commodity has hit new highs or fresh new lows and continues in that direction with little regard for fundamentals etc.

    Seasonally the US dollar suggests a bounce in mid October and a considerable rise in November:

    http://www.marketoracle.co.uk/images/2009/Oct/7USDSeasonal.jpg

    http://www.marketoracle.co.uk/images/2009/Aug/gold-history-31-3.gif

    Given fresh new highs in gold and big lows in the USD -- we could see a correction in the next few weeks? Then again its hard to control or predict manic buying and selling.

    Hey just a side issue – above not advice, only for debating – pls see a financial advisor for decision making and advice.

  • 17 Dan // Oct 14, 2009 at 10:39 pm

    I haven’t read all the comments, will do so later, but:

    I think (actually, I know) gold is being steadily bought up by countries wishing to divest themselves from the US dollar, particularly China. This is what is creating the ‘bubble’. Thing is, China has very deep pockets (it has cash to buy the world’s entire gold inventory at current prices) so the prices might remain high for some time. India is causing the usual seasonal fluctuations, plus they are also worried about what is happening in the US and are probably gilding up for that reason.

    I don’t personally believe in gold (silver is better for the little guy IMHO … talk about under priced!), but I do understand its uses. China, I’m guessing, foresees that it is being undermined by the US financial community . Even with gold at half the price, China sees it as better than owning what could end up as useless USD paper.

    There’s a lot of dodgy stuff going on in the US with regards to its gold inventories. I read somewhere that they pawned off a lot of it without telling anyone.

  • 18 Greg Atkinson // Oct 15, 2009 at 7:24 am

    Dan I think what you mention is what scares me the most about gold..i.e. there is just so much happening that is distorting the price at the moment.

    I actually believe China (and other nations) have moved on somewhat from using gold as a safe place to hold funds and have shifted into buying overseas resources types assets instead. I don’t doubt gold demand in China will move upwards but I see them also pumping billions into buying stakes in mining operations all over the globe. Perhaps precious metals, uranium and oil etc. will replace gold as the preferred safe haven for investors this century?

  • 19 Dan // Oct 15, 2009 at 8:43 am

    China seems to be in a bit of a bind with the USD and are buying anything to offload their dollars. Yes, gold gets talked up a fair bit. My guess is it just won’t rise as much as people believe it will -- but will fail to keep up with the rise of the next reserve currencies.

  • 20 Ned S // Oct 20, 2009 at 5:28 pm

    Cor, things get a bit toey over at that other watering hole -- Thought I’d pop in here for a blow if no one particularly objects? (With a bit of luck Duf might even pop up here one day too … Who’s to know?)

    Ah, we’re chatting the dreaded Au -- Indifference best describes my position as I already have enough of it to pay my council rates bill for a couple of years during which time I figure even a dumbie like me should be able to score a job digging soakholes/sinkwells/manure pits (or whatever they are?) plus craft a wedding ring and another baubble or two for one more lady with there being no chance of anymore ever being required.

    But hey, have you blokes noticed the blip in that USD 1975 thru 2009 Au chart back around 1979 to 1982 -- Seems unbelievable anyone could walk into such a trap again? But maybe this time it is different? Well truth be told, I think it is always different -- But with significant similarities as Mark Twain implied.

    Enough from me for now … Yarrestin!

  • 21 Ned S // Oct 21, 2009 at 7:17 am

    Read a comment recently that gold isn’t in a bull market any longer -- It is way more a case of the USD being in a bear market. And since then a guestimate that the US Fed will start upping interest rates around mid 2010 -- Just one guess of course (with it attracting squawks along the lines of “no way -- the US is doing it tough -- they will keep interest rates low for much longer!”)

    Maybe, but the Europeans are starting make noises about “a strong USD is important to us” now. So my take would be that at some point in the not too distant future, the US will up interest rates -- Even as only a token gesture -- And stock markets worldwide won’t like it and gold (in USD) won’t like it and the USD will like it as all the hot money gallops home again.

    Won’t be too flash for the AUD judging from what I’ve seen over the last year. Don’t know where the yen would sit in that?

    But is any of it really of great relevance to anyone who isn’t a trader? The cynical thought has crossed my mind that “they” could keep playing this game for years, with the big US banks trading themselves back to solvency as it is all played out longer term.

  • 22 Greg Atkinson // Oct 21, 2009 at 7:18 am

    Ned -- some people do tend to get rather emotional about investing, gold, real estate etc. I tend to be a bit more relaxed and accept that frequent mistakes are all part of the game :) As for gold I sill believe we are in the “bubble zone” but heck in October last year I reckoned the All Ords would bounce back quickly into the 4800 -- 5200 range! I still don’t quite see the logic of investing in something where prices are largely being driven up because it is going into vaults waiting for prices to be driven up by other people wishing to buy it and store in a vault.

  • 23 Ned S // Oct 21, 2009 at 8:12 am

    If I’m in any way correct in regard to my cynical thought Greg, there mightn’t be a whole lot of investing going on right now -- Quite respectable commentaries seem to be talking about what people are “betting on” as opposed to “investing in” a reasonable amount nowadays.

    I noticed you became conspicuous by your abscence fairly early in that other little exchange -- And eventually figured if the experienced soldiers had decided to pull their heads into their foxholes for a while it might be time for the likes of me to take the hint :)

  • 24 Greg Atkinson // Oct 21, 2009 at 1:07 pm

    Ned I think you are correct with your observation regarding cyclical investing. I suspect many investors are moving into gold for example because that is what they “bet” they will do well as opposed to really digging into why it is suppose to do well.

    Yes I pulled my head in from the other exchange as it seemed to be going nowhere fast ;)

  • 25 Ned S // Oct 21, 2009 at 7:19 pm

    It’s possible I may have misinterpreted elsewhere but my take was that I found myself having to defend the “folk wisdom” of having a job, and owning a home, and having some money in the bank and having other items (like a car maybe) paid off -- As opposed to the manifest wisdom of owning bullion and stocks and bonds.

    At which point I continued to be patient for a while (despite the fact a decent bloke like Duf was getting bad $hit put on him and his) and then went “f” you mob … Cop this … Before proceeding to piss orff and leave the two p’s “tuit”! :)

    I’m still shaking my head … Hey, maybe they’ll be right and both become squillionaires -- Or are alread squillionaires -- What do I know! (And good luck to them either way!) Because Yarrestin … :)

  • 26 Greg Atkinson // Oct 22, 2009 at 9:32 am

    Ned I cannot argue with your approach, I can see a lot of merit in taking a simpler approach to life and investing. But “Yarrestin” has me lost. Is this some Russian term you picked up on your travels or are you messing with my mind? :)

  • 27 Ned S // Oct 22, 2009 at 1:22 pm

    There is a lot to be said for not making life significantly more difficult than it has to be I think Greg.

    Yarrestin -- The origins of the term are as Aussie as seeing value in home ownership perhaps? :) In that it comes from the same family of Oz linguistic roots as Dufinishin -- Namely, the last known blogging name of a good bloke -- Du finishin -- The finishing. (Or at least that was my interpretation our mutual friend’s parting salute!)

    So specifically as regards Yarrestin -- Either of two interpretations are equally applicable and/or allowable under the circumstances -- Yar restin -- You are resting (as opposed to finishing) or given that I (with my russkie connections) took the hint too and that the Russian for “I” is pronounced yar …

    I suspect Dufinishin wasn’t the only thing that “Duf” ever said on DRA that some others had some comprehension issues with Greg. But it probably didn’t help that his basic message just wasn’t one they wanted to hear anyway?

    Irrespective, just a bit of home made entertainment from a couple of blokes who grew up in environments where one made a significant amount of their own fun I suspect -- Cheers!

  • 28 Greg Atkinson // Oct 30, 2009 at 10:10 am

    Ned thanks for clearing that up! I was scratching my head wondering what Yarrestin meant. I thought if I read the word backwards while hanging upside down drinking a beer the meaning might become obvious..but I only got as far as having the beer :)

  • 29 Senator13 // Nov 5, 2009 at 6:52 pm

    This is an interesting Gold article – seems there is further movement going on:

    http://www.smh.com.au/business/markets/gold-hits-fresh-record-on-bank-buyup-speculation-20091105-hyh1.html

  • 30 Greg Atkinson // Nov 6, 2009 at 5:30 am

    Yes Senator it is all happening. I am still not a gold fan at these prices though and the gold price in AUD terms has not had a great run this year. Just because India is shifting from USD to gold does not make gold a good investment in my mind. But I am probably one of the few gold bears around so I guess not many people share my view.

  • 31 Greg Atkinson // Mar 1, 2010 at 7:25 pm

    Well we know what George Soros thinks now and according to Bloomberg he reckons gold is in a bubble. He also seems to reckon he can ride the bubble for a while as he was a gold buyer last year. See: http://www.bloomberg.com/apps/news?pid=20601109&sid=aFszao23VDGA&pos=11

    The question is, when will he start selling and what will that do to gold prices?

  • 32 Anon // Mar 1, 2010 at 10:16 pm

    Hey Greg, I think Soros meant it will be the “ultimate” bubble. Meaning its not a bubble yet, but if fiscal conditions/policies etc dont improve this will be the biggest of all bubbles.

  • 33 Anon // Mar 1, 2010 at 10:16 pm

    Hey Greg, I think Soros meant it will be the “ultimate” bubble. Meaning its not a bubble yet, but if fiscal conditions/policies etc dont improve this will be the biggest of all bubbles.

  • 34 Greg Atkinson // Mar 2, 2010 at 8:12 am

    Hi Anon, actually I read more about what Soros was saying and he quite clearly said he invests in bubbles and gold is in a bubble. He believes the bubble has a way to run yet and must back himself to get out before it bursts.

    The reason this is so interesting is because he has made his views so widely known, which means when he sells people will take it as a sign (wrongly or rightly) that gold prices will crash.

    Anyway I already reckon gold is in a bubble and have though so for some time. This does not mean prices won’t go up more, it just means I know I am not smart enough to sense when it is about the burst and therefore it would be far too risky for me to attempt to ride the prices on the way up. (if in fact they do go up much more from here)

    The crazy thing is that the investment demand for gold is now greater than the jewellery demand. Is all that gold really going to stay locked in vaults…forever?

  • 35 Anon // Mar 2, 2010 at 9:46 am

    You could be right Greg. Irrespective of whether it is a bubble or not, I agree, its going to end badly.

    Surprisingly good Retail sales; Building approvals fall off a cliff:

    ABS retail sales up 1.2% in January 2010:
    http://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/8501.0Media%20Release1Jan%202010

    Less dwelling units approved this month:
    http://www.abs.gov.au/ausstats/abs@.nsf/latestProducts/8731.0Media%20Release1Jan%202010

    Remember above not advice, just commentary, seek financial advice from a financial adviser.

  • 36 Anon // Mar 2, 2010 at 9:50 am

    That buildings approval data is really bad.

    “Building approvals, though, slumped 7 per cent for the month, compared with analysts’ forecasts of a 1 per cent increase.”

    http://www.smh.com.au/business/retail-sales-jump-approvals-slump-20100302-penf.html

    Remember above not advice, just commentary, seek financial advice from a financial adviser.

  • 37 Ned S // Mar 2, 2010 at 10:41 am

    Yes, if we don’t start getting some more dwellings built, we are going to see some strong upwards pressures on prices. And rents. IMO.

    Interesting that it’s apartment approvals that fell of the cliff. Gottliebsen wrote about what was coming and why back in October:

    http://money.ninemsn.com.au/article.aspx?id=872610

  • 38 Greg Atkinson // Mar 2, 2010 at 12:39 pm

    Well I guess we are seeing the impact of the first home owners grant wear off? A bit of a worry to see a rise in government spending which now basically means more debt.

    As for gold, well gold exports earn a lot of dollars for OZ so if gold prices did not come down significantly that could be a nasty kick in the teeth.

  • 39 Ned S // Mar 2, 2010 at 1:15 pm

    There’s also a bit of chat going on about using special drawing rights as a reserve currency again. With one associatted thought being, Well central banks won’t have any great need for gold at all if that happens. Tricked if I know?

  • 40 Greg Atkinson // Mar 2, 2010 at 6:17 pm

    Yes I am a little lost Ned as well. But I still don’t quite see the logic now of having so much gold in vaults, at some stage people have to sell it to make money as gold in a vault does not pay any income as such.

    Are gold investors really going to sit there will their money locked up for 10 years or more?

    Perhaps the really smart people are the people who will make money when gold is sold or bought at any price?

    Overall I think the demand fundamentals don’t stack up at all. Gold is being stored and most of the gold ever mined is still around. There is no shortage of the stuff.

  • 41 Ned S // May 1, 2010 at 1:05 am

    Gold’s on a roll -- At least until it’s not. While I feel bugger all sympathy for Greeks who cheated their way into the union and borrowed beyond their means, I do feel a good bit for Krauts who didn’t and are supposed to bail them out. This socializing of the debt is all pretty seriously sick stuff! :)

  • 42 Greg Atkinson // May 13, 2010 at 8:41 am

    Gold rallies well on fear so it is quite popular at the moment. But I sense by the number of people talking gold prices up that there are plenty of traders etc sitting on tidy profits and I reckon that they would be quick to sell if they sense prices will fall.

    Since George Soros reckons gold is getting near bubble territory I am staying clear of the stuff until prices fall well below $1000 USD an ounce. I am just not buying into the end of paper money story, sounds like a rehash of the fear campaign of 2008-2009 when apparently capitalism was about the implode!

  • 43 Anon // May 13, 2010 at 10:44 pm

    “Since George Soros reckons gold is getting near bubble territory I am staying clear of the stuff until prices fall well below $1000 USD an ounce.”

    By the time that happens it might be in a major downtrend and you could be burnt trying to pick the bottom! It would go from moderately priced to value trap. I agree its overvalued ST from the EURO hype…but getting down well below 1,000$ is unlikely (caveat: then again oil went to ~30s!!)
    Silver looks the best value wise…historical inflation adjusted price is ~150$ + depending on the source. Will eventually move if gold keeps going parabolic.
    Pretty clear governments are going to blowup all over the place, over the next few years, given what has happened with this Euro debacle and stimulus packages worldwide fueled by debt/QE! Government balance sheets have gone down the gurgler. They will cut stimulus to fix the balance sheet, the economy will contract, and then they will need to borrow/qe again…rinse/repeat. Doesn’t look like a good ending!
    Just timing entries will be very difficult. PMs are so volatile and vicious in price movements.

    George Soros:
    “I’m not better than the next trader, just quicker at admitting my mistakes and moving onto the next opportunity.”

    Remember above not advice, just commentary, seek financial advice from a financial adviser.

  • 44 Ned S // May 13, 2010 at 11:02 pm

    Never heard of money printing preventing any country going broke?

    But maybe Japan was the exception???

  • 45 Ned S // May 13, 2010 at 11:49 pm

    Interesting perspective -- Gold’s an inflation hedge that is also benefiting from a flight to safety in both USD and Gold itself:

    http://seekingalpha.com/article/204718-reading-into-the-simultaneous-rise-in-gold-and-the-u-s-dollar?source=email

    Which is all nice. But when it comes right down to it, I simply don’t have any especially great use for it that I can think of. More fool me maybe?

  • 46 Greg Atkinson // May 14, 2010 at 6:38 pm

    Over the last few days I have not seen one analyst, fund manager or market commentator on Bloomberg be anything but bullish about gold. That suggests to me that gold prices are indeed in a bubble!

    I am hopeless at timing the market, but I wager that gold prices will fall below $1000 USD an ounce before October next year or I will name a venue and shout the beers for a few hours!

    Remember that despite the gold bulls talking about record levels of gold consumption, what this actually means is that record amounts of gold is being put into vaults. Most gold isn’t being “consumed”… it is being stored!

    Nobody seems too concerned about what an ounce of gold is worth anymore, am I the only one worried about that?

  • 47 Ned S // May 14, 2010 at 7:50 pm

    I feel a bit like those martians scratching their heads that Buffett mentioned.

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