Beware the Gold Bubble

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The rally in gold prices has driven several analysts and famous investors (Jim Rogers in particular) to frenzied forecasts in recent days. Some say gold prices will reach $2,000 per ounce soon. Others are predicting a big boom (sounds familiar?), saying gold prices will zoom to $5,000 and eventually to even $15,000 per ounce in the years to come. For instance, Jim Rogers is saying gold will top $2,000, possibly go even as high as $10,000 per ounce in the next few years.  Have we already forgotten about the housing bubble?

As far as I know, there has been no economic shift on the demand or supply for gold. Nevertheless, the price has increased incredibly on the speculation of greater inflation in the future. A sign of the gold rush is the US Mint. Earlier this month, the Mint ended the sale of 2009 American Gold Buffalo Bullion Coins, telling customers in a memo that its inventory has been depleted and that no more of the coins would be produced.

Put simply, we think Jim Rogers is incorrect. Although we’re not sure what the future will hold, we believe the probability of lower gold prices in the future is higher than ever – just see the commercials below.

Happy New Year everyone!


5 Responses to Beware the Gold Bubble

  1. So how do we short gold?

  2. DGZ

    All are inverse ETNs (similar to ETFs). You don’t even need to short to make money if gold drops.

  3. In a bubble, the agents are trying to get people to buy things (e.g. houses, internet stocks, tulips, etc.). These commercials are trying to get people to sell their gold. There’s a big difference.

  4. This is like calling the housing bubble in 2002. You are right, gold will someday be a bubble, like it was in 1980 but before that there is a huge bull market still to take place. And like real estate if you got in nearer to the bottom you’d still be up after the bust.

    Also, you are wrong, the supply fundamentals for gold are significantly changing.

    I think you presume that conventional wisdom is to buy gold because it is (and always will be) flooded in mass retail media. However the institutional investors who control the money of the world grew up int he massive bear market of the 80′s and 90′s and thus remain highly skeptical and underweight gold.

    Gold remains the “reverse” currency against fiat money as it has since the dawn of civilization. So there are real and shifting fundamentals to gold, its just currency investing, especially against the world basket is an inexact concept. As such determining the “value” of gold is highly difficult. However, that is very different than saying gold has no value or is a fad.

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