Is Golds Price Rise a Speculative Bubble or Fundamentally Supported?

[goldsworthy]

Is Gold's Price Rise a Speculative Bubble or Fundamentally Supported?

Some key historical points on gold, summarized from this data.

1833-1932: FLAT at about $20/ounce
1932-1934: doubled to $35/ounce
1934-1971: FLAT at about $35/ounce
***enter Great Britain being told "no" when they tried to trade in 3 billion USD for the equivalent in gold and the collapse of Bretton Woods***
1971-1980: increase by a factor of almost 25, to a high of $887.
1980-1982: cools off by half to about $400
1982-2002: FLAT at about 300-400
2002-2009: 400-1000

Interesting additional facts:


The US government has approximately 260 million ounces of physical gold reserves.
The Chinese government has approximately 1 trillion dollars of USD reserve currency.

If we returned to a Bretton Woods system, gold would have to trade at $3800/ounce just to satisfy China. Throw in Japan, and the oil exporting nations and the figure quickly approaches $10,000 per ounce.

There is an argument that the REAL 1980 inflation adjusted high is more around $5000-$6000 per ounce as the often reported $2400 inflation adjusted high inflation adjusts using the often questioned CPI.

Key points to take from this summary:


When there is a real loss of confidence in the dollar gold has a relatively recent (modern day, post WW2) precedent of moving exponentially.
Even if you got in "late" in the 1970's and bought at 3-4 times the price it started at (buying at 100-140) and then sold way after missing the 1980 high, you'd still be doubling or tripling your money at $300/ounce.

Excluding the 2002-present run up, prior big gold moves have coincided with extremely high inflation (technically reflation in the 30's).

The ultimate, bottom line conclusion boils down to this: if you think the Fed is somehow going to avoid severe 1970's style inflation or worse, then gold is an overbought, speculative market primed for collapse. If on the other hand you believe that as Friedman said, the real effects of inflation are felt sometimes a year after the monetary policy that creates it and the dollar's reserve currency status will be a resistance to inflation, but not a certain vaccine against it, then gold still has a long way to go.

I happen to think we will experience severe inflation and therefore gold is still a good buy because to quote Edward Harrison, a very prolific writer, "there is only one direction the government is headed: increase asset prices."

http://seekingalpha.com/article/165...ubble-or-fundamentally-supported?source=yahoo

 

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[goldsworthy]

Re: Is Gold's Price Rise a Speculative Bubble or Fundamentally Supported?

Beware Fortune Magazine's Gold Warning It was hardly a surprise to see a Wall Street mouthpiece come out with an anti-gold attack on the day that gold reached a new, nominal record-high. What is a surprise is how utterly pathetic was this counter-attack.

For those that missed it, Fortune magazine put out a piece yesterday titled “Beware the Gold Bubble”. The only piece of accurate analysis in the entire piece completely refutes the title to the article. There are two components to an asset-bubble: highly-leveraged debt and (obviously) a high asset-price. The gold market does not exhibit the slightest sign of either of those characteristics.

Even the first paragraph of this piece of trash refutes its own premise:

Signs of gold fever are everywhere. TV commercials scream “Sell your baubles, prices are reaching the sky!”
How stupid can Fortune magazine get? When “fever” sweeps a market, people are buying in, not selling. In fact, what those TV commercials “scream” to the masses is “gold is over-priced, sell while you have a chance!” For Fortune's assertion to be correct, we would have to see widespread advertising encouraging people to buy gold. In fact, while investment has surged, only a tiny percentage of investors hold any gold or silver in their portfolios – and there has been no mass-advertising of any kind in North American markets.

As Fortune, itself is forced to point out, adjusted for inflation the price of gold would have to rise to over $2,000/oz – just to equal its high from 1980. And that is using the phony “inflation” numbers of the U.S. government. Plug in real inflation data and the price of gold would have to surpass $2,500/oz to equal the previous high.

Can anyone list any other asset-class currently trading at less than half of its 1980 price? Obviously gold remains one of the most under-priced asset classes on the planet (with silver being the only cheaper commodity). It is a tautology that something which is under-priced cannot possibly be “in a bubble”.

The second requirement for an asset-bubble to exist is lots of leveraged debt. However, the stingy bankers are only providing leveraged financing for their own bets in their private casino: the derivatives market, as well as their own, in-house trading. There is absolutely no evidence that there is any leveraged debt in the precious metals market.

However, trillions of dollars of highly-leveraged debt still exists in the over-priced U.S. housing market – due to the complete inability of the Wall Street crime syndicate to purge all of the financial feces from its balance sheets. Citigroup, alone, is still sitting on a trillion dollars of off-balance sheet “assets” - leveraged waste products of which it is utterly incapable of absorbing the losses.

While there are real “bubbles” in the world, what we see more and more are media-parrots and pseudo-experts tossing this word around every time some asset hits a new high. The only place where the U.S. propaganda-machine cannot seem to (ever) spot a “bubble” is in U.S. markets – at least not until after those bubbles burst in spectacular fashion.

Far from gold being in a “bubble”, its bull market remains in its early stages – thanks to the reckless actions of Western bankers in trying to prop-up their crumbling, financial empire. What few people (and none of gold's critics) understand is that generally speaking, gold doesn't “rise in value”, instead it is the inferior forms of money – the paper “fiat currencies” - which are rapidly losing their value (and the confidence of investors).

This should surprise no one with any knowledge and understanding of economic history. For two thousand years, every time that bankers have been given an unlimited “license” to print money (i.e. where a “gold standard” is no longer present) they destroy their own financial systems through excessive debt-creation and excessive money-printing.

This seems impossible. How could the same “professionals” never learn from making the same mistakes for two thousand years? However, all we have to observe for this to suddenly become easy to understand is how little (i.e. nothing) the Wall Street banksters learned from destroying their own sector this time, and nearly destroying the global financial system.

It is no secret that greed is an irrational emotion, and that Wall Street banksters are the most reckless, greedy bankers in the history of this species of parasite. Thus, the end of this story was already written the day that Nixon defaulted on the United State's gold obligations – and completely removed the last remnants of the previous gold standard.

Two thousand years of history tells us, however, that these banksters never willingly accept their own self-created fate. As their over-leveraged, fraud-based financial empire teeters like the unstable Ponzi-scheme that it is, we can expect even more extreme, more frantic efforts to try to prop-up their own assets. This means nothing less than even more reckless money-printing, and more leveraged debt.

When I first became a true, “gold bull”, I was looking for a price-target (as a top) somewhere around the inflation-adjusted previous high – in other words, $2,000+, but not a lot more. However, when Wall Street's massive, Ponzi-scheme burst, and the response was to engage in the most-reckless money-creation and debt-creation in history, my long-term price target gradually shifted toward the $5,000/oz range.

As the banksters continue to make things worse (for themselves, and most of the U.S. economy), they continue to create even more-bullish fundamentals for the gold market. I now have no long-term price target, because in the current fluid state of the global financial system (where no responsible reforms of any kind have occurred), I would have to simply keep revising such an estimate higher every few months.

Far from proving that the gold market is a “bubble”, all that Fortune magazine proved is that you should never listen to anything from a Wall Street mouthpiece when it comes to gold.

Disclosure: I hold bullion, otherwise no positions Well, gold is the anti-currency, and a symbol of chaos, and a threat to the established banking system, and the lifestyle of ever-expanding debt we've all come to love so much. What do you expect? I think the ONLY thing that could trigger in Ben Bernanke a policy of letting TBonds and stock markets float on their own would be a desire to sink gold, which is a direct threat to his place of power in the system. There's a lot at stake. If gold rises, something is clearly amiss. Those who want to pretend that NOTHING IS AMISS are going to have a fit about gold going up
http://seekingalpha.com/article/165472-beware-fortune-magazine-s-gold-warning?source=yahoo