Theo_Fidel wrote:Folks are not holding back on the gold bubble
Gold bubble? What is that?
The gold bubble has not popped! ...because gold is not in a bubble. There is no gold bubble. There is no such thing as a gold bubble. Never has been. Never will be. 1980 was not a gold bubble. And anyway, today's situation is entirely different.
In fact, gold is the opposite of bubbles. It is the inverse, the recipient, the beneficiary of "frothy air" that escapes at lightning speeds when bubbles pop. It has already capitalized on the demise two bubbles this decade. And it is now about to absorb the froth spontaneously expelled by two more, the two biggest bubbles the world has ever seen.
Two Historic, World-Class Bubbles are About to Pop in a year or three.
Bubble #1: Government Debt (with a nominal value in the tens of TRILLIONS)
Bubble #2: Perceived Wealth, denominated in purely symbolic, un backed, unsustainable-Ponzi-debt-based currency (with a nominal value in the HUNDREDS of trillions)
In 1971 we could say that the high value of the US dollar was actually in a bubble. The clearest sign that this bubble was about to pop was Charles de Gaulle's demand of US Treasury gold as France expressed its desire to end the dollar's wealth reserve function. In pure desperation, the gold window was closed and boarded up like a bungalow in the Keys before a hurricane. This display of pure weakness and fright was like a pitchfork impaling the dollar bubble and gold promptly rose 2300%.
In 1929 the Stock Market Bubble burst and even though gold was under strict parity rules, severe pressure had to be released by raising its price 70%. But even this wasn't enough to contain the panicked flight of capital so domestic gold possession had to be outlawed as well.
In 1720 France, John Law's paper currency and "Mississippi Company" bubble popped. The entire capital flow went right into gold and silver. A frantic Law first limited the amount of gold that could be redeemed to stem the flow, then attempted to turn his company stock into actual currency, doubling the money supply and further impaling his bubble. Ultimately he outlawed the ownership of gold in a desperate and feeble attempt to save his dying bubble. But this only made things much worse for him and he was finally forced by the King to flee France for Venice where he died penniless eight years later.
Lastly, from the day the Dot Com Bubble popped until the Housing Bubble popped (7 years later) gold rose 140%. Then, again, from the Housing Bubble implosion until today (a little more than 2 years), gold has risen another 70%.
Gibbons paradox scheme and strong dollar policy kept the price of gold suppressed but its now unravelling.
Investment demand, the kind of demand that uses any object of desire as an investment rather than a useful commodity, can obviously flow into almost anything; Tulip bulbs, stocks, bonds, real estate, computer geeks working out of their garage, etc... And as investment demand exceeds utility demand, malinvestment occurs producing the object of desire beyond its commodity demand, creating an inventory surplus.
But changes in the gold price are mostly driven only by investment demand. Industrial supply and demand in gold is very stable relative to investment supply and demand. So any significant rise in the price of gold is a clear indication of growing investment demand and is also a positive confirmation of the premise behind that demand, that gold will rise. This creates a self-affirming feedback loop of positive reinforcement.
And since gold production cannot be ramped up to meet demand like it can in bubblicious items, there is no reason for gold to fall back. Gold mining does not debase gold in the same way that dollars, tulips, homes, Dot Com IPO's or government bonds are debased through production. Mine production is taken from known reserves that are already valued, owned and traded, and all gold on the planet Earth is a fixed amount, the same fixed amount it was a million years ago. All we do is move it around, like poker chips on a table, to those savers that value it the most.
Furthermore, the price of gold is completely arbitrary. This means that gold can go as high as the people of Earth want to take it without EVER exceeding objective valuations by common metrics like earnings, interest or the sum value of its component elements. Gold IS the element. It cannot be broken down further, except perhaps by the LHC.
One of the most common criticisms of gold's use as an investment is that it cannot be valued the way stocks, bonds and real estate can. They are all commonly valued by their yields, and gold has no yield, therefore it cannot be fairly valued, or so the argument goes. But if we invert this argument then gold can never be OVERvalued either, whilst those other things can, and are... in a bubble!
The price of gold is arbitrary, ergo, there is no such thing as a gold bubble.