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
Canadian Cannabis Stocks CRASH as Canopy Growth Hits a Dead End - 14th Dec 19
Retail Sector Isn’t Dead, and These 6% Dividend Paying Stocks Prove It - 14th Dec 19
Top 5 Ways to Add Value to Your Home - 14th Dec 19
Beware Gold Stocks Downside - 13th Dec 19
Fed Says No Interest Rate Hikes In 2020. What About Gold? - 13th Dec 19
The ABC’s of Fiat Money - 13th Dec 19
Why Jo Swinson and the Lib Dems LOST Seats General Election 2019 - Sheffiled Hallam Result - 13th Dec 19
UK General Election 2019 BBC Exit Poll Forecast Accuracy Analysis - 12th Dec 19
Technical Analysis Update: Tadawul All Share Index (TASI) - Saudi Arabia ETF (KSA) - 12th Dec 19
Silver Miners Pinpoint the Precious Metals’ Outlook - 12th Dec 19
How Google Has Become the Worlds Biggest Travel Company - 12th Dec 19
UK Election Seats Forecasts - Tories 326, Labour 241, SNP 40, Lib Dems 17 - 12th Dec 19
UK General Election 2019 Final Seats Per Party Forecast - 12th Dec 19
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Gold Price is No Bubble

Commodities / Gold & Silver 2009 Nov 04, 2009 - 11:49 AM GMT

By: Midas_Letter

Commodities

Best Financial Markets Analysis ArticleThe price performance of gold recently has all sorts of armchair economists waxing philosophical on the idea that this is the advent of a price “bubble”. While certainly everyone has and is entitled to their opinion, there are other features of humanity that we all possess, and much like many opinions, are best obscured from view.


Declaring that gold is in a “bubble” demonstrates complete ignorance of or disregard for the fundamental drivers of the almost ten year ascent of gold. And saying that the price is forming a bubble implies that, like the real estate bubble, the tech bubble, and the tulip bubble, the price must necessarily “pop” and return to a sustainable long term average.

During each of the bubbles of recent and distant history, the cause of the meteoric price ascents of these various asset classes were all predicated by the same string of events.

Supply was far outstripped by demand because the public perception emerged that the asset class in question was the ultimate asset class at that point in time. Disproportionately high levels of capital were directed to them, and upon the eventual discovery that supply could easily meet and exceed demand, the bubble pops, the price declines, and the herd mentality resumes its frantic search for the next ‘ultimate’ asset class.

Homes, technology and tulips are all a product of effort. With increased effort, more of each of these can be created. Supply can easily be ramped up to meet demand.

Not so much, in the case of gold. The availability of economic concentrations of gold in deposits near to the surface of terra firma is finite. Increased effort might guarantee the temporary increase in supply from known deposits, but each deposit is eventually exhausted, and no amount of increased effort can bring back the gold.

Gold, for the most part, is not used up. It is fabricated into jewellery or bullion or coins, and hoarded and preserved.

Technology, real estate, and tulips, on the other hand, are consumed and replaced. Technology becomes obsolete, homes wear out, tulips die and are reborn each spring.

Gold? Gold goes nowhere. Gold stays put. Gold is passed from generation to generation in last wills and as heirloom collectors items. Gold is recognized as a store of value that is not temporary.

The only way to diminish that is through government interference, such as the various legislative actions that have historically capped gold’s value at a fixed price, or if, for some reason, humanity decided to abandon its greedy predisposition to hoard value against future financial calamity.

The latter is just as improbable as the former.

The idea of capping the price of gold through international agreements flies in the face of the entire concept of free markets, now the near universally accepted preferred economic style. And the innate fear of not having enough that is a basic element of the human cerebral infrastructure is eternal, or at least, that’s how it seems. So what could, for arguments sake, cause the price of gold to plummet suddenly, thus obviating the recent spike as a bubble?

Well, the forces of supply and demand are always dominant. If those who want to buy gold and are willing to pay the market price for it exceed the number of those who have gold and are willing to sell it, the price will be forced upward. Just as elementally, if sellers outnumber buyers, the price must needs decline. So simple.

And who’s selling gold?

Well we can point to the International Monetary Funds plan to divest itself of 400 tonnes of gold, ostensibly to finance the stimulus of nations unable to underwrite their own economic stimulus. But just as soon as the proposed sale is announced, India steps up to the plate to take half. In one transaction. The largest single lot of gold made available since the onset of the secular bull market, and a buyer is found easily.

Russia, the economic basket case of the world thanks to its national inability to govern itself with laws and reason as opposed to brute force, recently announced the necessity of a sale. But that is clearly necessitated by the national hands’ inability to refrain from raiding its own pockets. A genetic defect, it would appear.

Who else has sufficient gold to sell, that might drastically influence the supply/demand matrix to cause a popular abandonment of gold? China, the United States, and various G7 nations. But none of them are selling. Indeed, China has revealed that it has been the principle sovereign accumulator of gold for over 5 years.

Even during and post economic crisis, the impetus was to retain and accumulate, not sell gold.

No. The bubble we are immersed in at present is the currency bubble. Led by the disingenuous United States, the world has temporarily forgotten that despite the fact it is possible to print currency easily and with abandon, the laws of supply and demand will definitely re-assert themselves in due course. And that is what we are seeing now with the gold price.

The confidence in a dollar printed on paper being able to obtain a dollar’s worth of merchandise is fading with every treasury auction. The popular perception is growing that gold is indeed a monetary standard, and a store of value that can be trusted in both turbulent and stable economic conditions.

There is nothing on the economic horizon that can change this. We are in the period of descent for the American empire and its feeble dollar. The nation is bankrupt, morally and economically. It can no longer bamboozle the world into accepting its counterfeit currency in exchange for trade. Only nations who are forced by their vast holdings of the monopoly dough to entertain the notion that it has value participate in the illusion, because the alternative would necessitate a drastic re-valuation of their own financial integrity.

So on the supply side, there is no availability. No one is selling. The miners are mining as much as they can as fast as they can and still the buyers are lining up.

On the demand side, nothing but more, more and more demand. No trustworthy currency in sight (except perhaps the renmibi, increasingly a gold-backed currency), no asset class alternative that is comparable, no new bubble to chase.

I suppose its good to have alternative viewpoints in media. Its important to listen to all sides of a story. But if the issuing orifice declaring a bubble inhabits a region below the waist, those who act on such advice will find themselves duly smeared in good time.

Gold price bubble? Give me a break!

By James West

www.MidasLetter.com

Source: http://www.midasletter.com/commentary/091013-1_Gold-price-action-emphasizes-standard-status.php

© 2009 Copyright Midas Letter - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Midas Letter Archive

© 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