Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Bubble?...Not By This Fiat Currency Measuring Stick

Commodities / Gold and Silver 2010 Oct 04, 2010 - 03:29 AM GMT

By: Chris_Blasi

Commodities

Best Financial Markets Analysis ArticleProclaiming a gold bubble has been the mainstream financial media's Pavlovian response to every incremental increase made by the yellow metal since it emerged from a two decade low in 2001. Appreciating an astounding 400%+ in USD's from its bottom, gold has handily outperformed all major asset classes over the past 10 years. Importantly, this achievement was attained without the support of, nay, despite relentless negative coverage by mainstream financial pundits and highly esteemed economic academics.


Cockeyed thinking in the conventional camp.

Conventional thought concludes that gold must be overvalued, since it has appreciated so forcefully against the professionally managed dollar (and all other central bank controlled fiat currencies) the past 10 years. The basic premise supporting this thinking is fundamentally and fatally flawed. The foundation for this belief lies in a blind devotion to the idea that the US dollar, cast as ultimate and omnipotent medium of exchange, has achieved a state of permanence. In reality, such a position could only be ascribed to a medium of exchange far less vulnerable to the misguided policies of error prone men. Further, this myopic US dollar centric mindset demonstrates a dangerous lack of appreciation for history.

Not a 70's gold bull replay.

True, gold's last bull run gave way to 20 years of price erosion, ratcheting down to the lowly exchange rate of $255 per ounce. Regardless, the US and global economic landscape of 2010 is vastly different than that of 1980. Today's exponential growth of sovereign debt is straining confidence in faith based currencies, particularly one which holds the mantle of world's reserve currency. This current debt differentiator, in conjunction with a myriad of other issues inhibiting US economic growth, is substantial enough to reasonably assure investors of a strikingly different course and conclusion to this gold bull.

Observations from a natural resources expert.

Striving to keep my ideas in check, I seek to consult with others tasked with understanding the global financial markets. As such, I posed the basic question of whether the gold price is in bubble territory to Tom Winmill, president and portfolio manager of the Midas Fund (www.MidasFunds.com). Tom's response; "Whether gold is in a bubble depends on your currency point of view. In Zimbabwe dollars, definitely not. In Chinese renminbi? Maybe. In U.S. dollars? That's what at Midas we call the 62 trillion dollar question. Sixty-two trillion dollars is the approximate amount that some, including David Walker who served as the U.S. Comptroller General from 1998 to 2008 , estimate is the total debt of the United States in explicit obligations and unfunded promises. The question then becomes is "how is the United States ever going to deal with this unimaginably huge sum?"

Exploding debt and politically expedient solutions.

Strip away all the trappings, and the US dollar quandary is easy to understand. Huge debt, growing debt, and no politically feasible way to resolve it. With history as a guide, and political attitudes as they are, the road ahead for the dollar is somewhat predictable. More debt and more dollars, which should be supportive of gold's ongoing long term price assent, followed by US debt saturation and dollar repudiation, potentially sending gold prices parabolic.

The chart below provides a good illustration of the accelerating national debt. Similar acts of financial self destruction were simultaneously performed by a large swath of individual households in tandem with state and local government. Note the irony in regard to the close time proximity whereby national debt accumulation began its aggressive ascent and gold commenced its 20 year odyssey in the financial wilderness. As the debt seeds were being sown, gold was squelched by investors heeding the siren song of "this time it's different, debt doesn't matter." Of course it doesn't matter, until it does. Come 2001, gold ceased to remain mum on the soon to emerge global financial crisis and resumed its role as financial early warning system.

Greenspan comes clean on gold and fiat currency.

Speaking to the Council on Foreign Relations on September 15, 2010, Alan Greenspan advised central bankers that they should be paying attention to the price of gold. "It signals problems with respect to currency markets, " said Greenspan. "Central banks should pay attention to it."

Responding to a query by the Council as to the forces driving the price of gold, the former Fed Chairman replied, "Fiat money has no place to go but gold," as reported by economist David Malpass in The New York Sun. Malpass further noted that Greenspan admitted to thinking a lot about gold prices over the years and decided the supply and demand explanations treating gold like other commodities "simply don't pan out." Greenspan's conclusion, as characterized by Malpass, "gold is simply different."

Conclusion

Gold bubble or debt bubble leading to currency crisis?

If blind allegiance is pledged to a faith based currency, and unswerving trust is bestowed upon its guardians, than gold must appear to be trading at absurd levels. Conversely, if the actions of the Fed, Treasury, and Congress continue as they have, and no credible indication to the contrary has been remotely telegraphed yet, than history may prove the most astute forecaster. In such an environment, gold may not only not be in a bubble, but in the preliminary stages of a monumental bull market leading to the unthinkable. And the last point may be that when priced in future dollars, as when measured in Zimbabwe dollars or Weimer Republic Mark notes, whatever price level gold ascends to could be a point of permanence.

By Chris Blasi
www.NeptuneGlobal.com

Neptune Global Holdings LLC is a boutique precious metals research and trading firm headquartered in Wilmington, DE USA. The firm has differentiated itself through independent analysis of market fundamentals and the development of investment solutions unique to the physical precious metals market.

Proprietary research is provided to select institutional clients and financial professionals. Assessment of the global precious metals market is calibrated through ongoing analysis that encompasses a broad spectrum of macro economic and geopolitical factors.
The firm�s investment offerings are true to its core convictions related to the time tested value ascribed to physical precious metals.

Specialized investment assets are made available in conjunction with other internationally traded forms of gold, silver, platinum and palladium.

© 2010 Copyright Chris Blasi - All Rights Reserved

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Neptune Global Holdings LLC (Neptune). The author has made every effort to ensure accuracy of information provided; however, neither Neptune Global Holdings LLC nor the author can guarantee such accuracy. This article is strictly for informational purposes only and a sampling of diverse editorial opinion.  It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Neptune Global Holdings LLC and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.  Neptune does not act as, nor offer the services of, an investment advisor. Individuals should conduct their own due diligence before making any investment choices.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

joshua gamen
12 Oct 10, 01:42
Long way to go before bubble collapses

When they print the dollar like it's toilet paper - you can be sure gold and silver are goin' up!

http://joshuagamen.wordpress.com/2010/10/05/blowing-bubbles/

http://www.youtube.com/watch?v=Ru7vy8xKSVE


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules