Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19
Silver Is Cheap – And Getting Cheaper - 7th Oct 19
Stock Market Back to Neutral - 7th Oct 19
Free Market Capitalism: Laughably Predictable - 7th Oct 19
Four Fundamental Reasons to Buy Gold and Silver - 7th Oct 19
Gold and Silver Taking a Breather - 7th Oct 19
Check Engine Warning Light ECU Dealer Diagnostic Cost - Land Rover Discovery Sport - 6th Oct 19
Natural Gas Reloads For Another Price Rally - 6th Oct 19
Understanding and Purchasing different types of Plastic Building Materials Online - 6th Oct 19
Craig Hemke: Ignore the Elliott Wave “Buffoons” Calling for a Gold Crash - 6th Oct 19
Stock Market 6 Month Trend Forecast Conclusion - Video - 6th Oct 19
The True Causes Behind the Yield Curve Inversion and Gold - 5th Oct 19
Strategies on how to be a Successful CFD Trader - 5th Oct 19
Gold Stocks Correction Underway - 5th Oct 19
Climate Change When the Levee Breaks - 5th Oct 19
Federal Reserve Bank ‘Guarantees’ Dow Will Not Sink Below 26k - 5th Oct 19
The Russell and Transportation Tell A Completely Different Stock Market Story - 4th Oct 19
Confidence Drives the Economy and Trump’s Trade War Is Killing It - 4th Oct 19
ADL Predicts Crude Oil Prices Will Fall Below $40 - 4th Oct 19
Investing Money? Why You Need a Reputable Accountant - 4th Oct 19
Stumbling Manufacturing and Rising Gold – Now or Later? - 4th Oct 19
Silver Eyes Fourth Quarter Rebound - 4th Oct 19
Gold Price Forecast to Exceed $10,000/Ounce - 3rd Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Six Gold Bubble Myths

Commodities / Gold and Silver 2011 Jun 17, 2011 - 02:22 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleAnyone calling gold a bubble is talking through their hat or worse...

YES, GROWTH IN global gold demand is rapid. No, another decade of quintupling prices isn't nailed on. But neither of those facts make gold a "bubble" today.


In fact, anyone calling gold a bubble right now is talking through their hat – at best. Take these jokers, for instance, all holding forth in the last month...

Myth #1. "Gold is a crowded trade"
The finance pages are packed with gold headlines, but actual investment levels remain low. In the early 1980s, private-bank clients were expected to hold 3% of their wealth in gold, many times the 0.5% allocation seen across the finance industry today. Even in the bullion market itself, three-quarters of the 500-plus analysts and traders attending last autumn's LBMA conference in Berlin said they held as little as nothing ("Between 0% and 10%") of their savings in precious metals. Saturation is a long way off.

Myth #2. "Gold has madly rushed to $1500 without a correction"
Compared with undeniable bubbles, gold's recent climb just isn't steep enough. Gold prices rose 70% for Dollar investors in the last 3 years, but US stocks rose 160% in that length of time in the 1920s, and Germany's Neuer Markt rose over 1600% starting in 1997. London's South Sea Bubble of 1720 rose 9-fold in 5 months! What makes gold remarkable today is the longevity, not speed, of its bull market – now delivering positive, inflation-beating returns to US and UK savers every year since 2001.

Myth #3. "Gold will fall hard when interest rates rise"
Only if interest rates outpace inflation, and what are the chances of that? People turn to gold when cash – its major (and otherwise better) competitor as a store of wealth – loses value. Sub-zero real US rates have already cost cash savers over 3% of their spending power in the last 18 months. Rates currently lag inflation by the widest margin since the summer of 1980. Back then, however, the cost of living was rising at double-digits, and could not be talked away.

Myth #4. "Inflation is set to fall back"
How, exactly? The cost living is hurting earners, savers and seniors alike, but mostly because their incomes aren't growing. On the official data, the Consumer Price Index has risen barely 11% from five years ago, its weakest long-term rise since 1967. Anything lower, and QE3 looks certain, thanks to the Fed's anti-deflation fixation. If US inflation is headed anywhere from here, it's not down.

Myth #5. "Gold's not an investment, because it doesn't pay interest"
A desperate claim which is at least true – true a decade ago at $260, and true evermore unless an investment bank sells you a structured derivative. Gold's lack of income means it has no promises to break, setting it apart from all other asset classes, most notably debt. It's hard to accuse gold buyers of "over-optimism " (Charles Kindleberger's definition of bubble), but this market would only move into "irrational exuberance" (Robert Shiller's phrase) if it kept rising after monetary policy switched from weak to strong.

Myth #6. "Gold will burst when the world economy settles down"
You've got to love that "when". But beyond its impact on policy rates, however, economic growth has little to do with gold prices. Gold fell vs. the Dollar during the US recessions of 1980 and 1990, only to triple during the go-go years of 2003-2007. Across the last four decades, in fact, gold shows a negative but statistically insignificant correlation with quarterly US GDP of minus 0.11 year-over-year. Quarterly GDP in China (the world's second-biggest buyers) shows a negligible 0.08 correlation since 2005. Rupee gold prices since 1996 show only a 0.32 correlation with Indian GDP.

People started saying gold was a bubble in early 2008 at $1000, then at $1200 and $1300 in 2009 and 2010, and now at $1500 and above in 2011. Yet still nothing has changed to the core case for gold. If anything, in fact, the fundamental reasons for private savings going to buy gold have grown stronger.

Ultra-loose money is locked in by record peace-time debts and deficits. Central-bank and private-Asian gold buying continue to grow as economic power moves East.

Everything else is just noise – the one excess to which gold investing is prone right now.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


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


Post Comment

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

6 Critical Money Making Rules