Gold Silber If you've been following these precious metals, you know that they basically increase every time someone says "QE". Assuming there isn't a mass collapse of metal-mines, it seems like a lot of people are bidding up the price of precious metals. How can we tell if this is a bubble? What will pop it?
It's a bubble if it is increasing through government intervention in the market. For instance, we had a housing bubble because of government intervention in that market. As far as I can tell, government isn't supporting the metals market in any way.
It will eventually end in a bubble, but we are far from that point. Unlike the credit induced housing market collapse; most of the money going into the metals market is coming from savings.
Keep in mind that Silver is still far off its all-time highs, both nominally and adjusted for inflation. Silver needs to break $50 to best it's nominal high, and over $125 when you account for inflation. Our problems are worse now than they were in the 80's. We aren't going to have, a president like Regan, unless Ron Paul is elected by some miracle, acknowledging government as a problem. Remember, in addition to a anti-government president (comparatively speaking) we had an aggressive FED chairman raising rates to 22% to shut down the inflation and metal bull market. I don't see anything close to that happening any time soon.
Also, there are more commercials out there that are promoting exchanging your gold for fiat money. When we're in the bubble stage, the entire country will be wanting metals.
I’d guess they’re both bubbles to the extend that either will turn out to be unusable as actual currency or reserves. Otherwise, this is only the beginning.
If a price of something goes up sharply, that doesn't mean it's a bubble.
1. Let's look at Zimbabwe and the Weimar Republic, places like that. The price of everything went up, really went up. Was that a bubble? No, it was the currency losing value. That's one part of the reason gold is going up, general inflation.
2. As Bob Murphy wrote, a bubble is when most people are buying the stuff to sell later on to the next guy, as opposed to wanting the thing for it's inherent usefulness. When no "next guy" is found, the bubble bursts.
So the question becomes one of reading minds. WHY are people buying gold now? When India and China buy hundreds of tons of it at a time, you can be sure it is to sit tight on it forever. When China encourages its people to buy gold, it's not to have them sell it later.
My guess is that most people buying gold now are doing so because they think the fiat money they are using to pay for the gold is going to lose value. If that is the reason, they are going to hold on to it until they are assured the fiat money their country uses will settle down. Given the vast amounts of money printing going on, that's not going to happen anytime soon. So that people are buying it to hang on to it for a long time.
3. Peter Schiff had some intricate argument about speculation in gold [= cause of bubbles] affecting gold mining stocks a certain way, which is not happening. I think he said specualtion would be a mad rush for the mining stocks, more than for gold itself, because you get more profit for your buck if you own a mining stock when gold goes up than you would owning the gold itself. I confess I'm a bit hazy here.
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FunkedUp:Keep in mind that Silver is still far off its all-time highs, both nominally and adjusted for inflation. Silver needs to break $50 to best it's nominal high, and over $125 when you account for inflation. Our problems are worse now than they were in the 80's. We aren't going to have, a president like Regan, unless Ron Paul is elected by some miracle, acknowledging government as a problem. Remember, in addition to a anti-government president (comparatively speaking) we had an aggressive FED chairman raising rates to 22% to shut down the inflation and metal bull market. I don't see anything close to that happening any time soon.
Smiling Dave:3. Peter Schiff had some intricate argument about speculation in gold [= cause of bubbles] affecting gold mining stocks a certain way, which is not happening. I think he said specualtion would be a mad rush for the mining stocks, more than for gold itself, because you get more profit for your buck if you own a mining stock when gold goes up than you would owning the gold itself. I confess I'm a bit hazy here.
Smiling Dave: My guess is that most people buying gold now are doing so because they think the fiat money they are using to pay for the gold is going to lose value. If that is the reason, they are going to hold on to it until they are assured the fiat money their country uses will settle down. Given the vast amounts of money printing going on, that's not going to happen anytime soon. So that people are buying it to hang on to it for a long time.
Hi...
I see this very interesting... so can we conclude that both gold and silver are going up for sure for the next 5 years? or at least for the next 2 years?
Well, if so are the current prices convenient to buy now? especially sillver ... the recent slope is so steep and is not in line with the longer previous period? Doesn't this ring an alarm?
Smiling Dave: "... because you get more profit for your buck if you own a mining stock when gold goes up than you would owning the gold itself..."
Technically speaking, it seems right and smart analysis, but a specific stock or share should be studied carefully to take into account differences in the conditions of each company, the costs it bears, revenues, risks... etc which sure differs from one company to another.
1. Let's look at Zimbabwe and the Weimar Republic, places like that. The price of everything went up, really went up. Was that a bubble? No, it was the currency losing value. That's one part of the reason gold is going up, general inflation
The first Zimbabwean dollar was introduced in 1980 and replaced the Rhodesian dollar at par. The initial ISO 4217 code was ZWD. At the time of its introduction, the Zimbabwean dollar was worth more than the U.S. dollar, with ZWD 1 = USD 1.47. However, the currency's value eroded rapidly over the years. On 26 July 2006, the parallel market value of the Zimbabwean dollar fell to one million to the British pound.[4]
According to Central Statistical Office statistics, annual inflation rate rose to 231 million percent in July 2008. The month-on-month rate rose to 2,600.2%.[47] By December 2008, inflation was estimated at 6.5 quindecillion novemdecillion percent (65 followed by 107 zeros).[48]
Gold hit it's last all time high back around 1980 at about a thousand dollars an ounce. If you bought an ounce of gold then with ZWD you'd have spent about 750.00 USD. If you sold that ounce in 2008 you would get a whole lot of Zimbabwe dollars. (sorry about the lack of numbers or even an estimate, I get a brainfart after a a couple of thousand zeros).If you were a near sighted Zimbabwean investor you could look over the gold chart over the ensuing 28 years and decide that gold was in a never ending bubble having gone up a novemdecillion percent.I didn't even know that was a number. Point is the bubble wasn't gold it was the ZWD. If gold gold goes up in terms of the USD and all other commodities follow suit it's a dollar bubble. If gold goes up and other commodities don't relative to the USD it's a gold bubble.
I hear the same rationales being used today for precious metals that I heard in the dot-com era, housing boom and the oil bubble.
People are always looking to affirm hypothesis.
^So how do we know?!
Sadly it's not a bubble (I say sadly because it would pop and I could get more for my money). In fact I believe silver is still underappreciated and gold still has a little to gain to be where it should be.
The reason is simple: all that pent-up liquidity the Fed, the ECB, the Bank of England etc printed up at the end of 2008 is starting to trickle into the real world. Have you filled up lately? Or bought some fresh fruit? Or a book? Prices are on the rises everywhere in spite of the usually near-comatose CPI. Monetary inflation is becoming price inflation at an alarming pace, not the measly yearly 2,2% Keynesian economists call for. Investors are taking notice, they buy groceries too. They see stocks going into the stratosphere despite declining (or even collpasing) sales. They may know zilch about Austrian Economics but they are smelling trouble. And when investors smell troubles, gold and silver always increase their value.
Another thing thing to note, while gold and silver are getting closer to their all time nominal highs, they still have a ways to go to beat their highs adjusting for inflation.
I thought the gold bubble was going to pop months ago. That's why I took my money out of it...
But I was wrong
I still don't trust it though. With the rise of all these "cash for gold" schemes... I just couldn't put my money in something like that.
In States a fresh law is looked upon as a remedy for evil. Instead of themselves altering what is bad, people begin by demanding a law to alter it. ... In short, a law everywhere and for everything!
~Peter Kropotkin
Well that's a bit of a philosophical problem.
We can't know the future, we can only speculate it. It only becomes obvious that a commodity or "class of commodities" was in a price bubble after the fact.
If the price comes up quickly, and drops quickly, then it was in a bubble. People use rationales to try to predict what will happen to the price in the future. But since we can't know the future, none of these ways are perfect.
Let's say that we go through QE3, and out comes $3 trillion. Shortly thereafter, gold plummets in price to $500/ounce and pretty much stays there. What does that do for the hypothesis "printing money makes the price of precious metals go up!"? It falsifies it. If the price were to shoot up to $3000/ounce after QE3, would it verify the hypothesis? I'd be inclined to believe the hypothesis wasn't falsified, but that it also wasn't verified, only because the cause of the price increase could have had nothing to do with QE3. The economy is a chaotic system, and any number of variables/factors/dimensions could be at play here.
It's epistemological arrogance that causes entrepreneurship and speculation. Not that it's a bad thing; it's absolutely critical to have some of this arrogance to live our lives. the problem is, when it's taken to the extreme, people start looking to verify their stories and hypotheses and believe that these can predict the future with a great deal of accuracy. Such as the "housing prices always go up" narrative/hypothesis.
IMO, there is a better case for precious metals to increase in price than there was for housing. But the current run-up in silver and the great performance of gold for the past decade has me questioning further increases. I've been pushing precious metals for some time. But I'm turning back on that, only because I like to go contrarian on myself from time to time.
Giant_Joe:I've been pushing precious metals for some time. But I'm turning back on that, only because I like to go contrarian on myself from time to time.
Who do you think you are, Francis Yisiro Hedgeworth? :P
More seriously, I think as far as our current predicament goes, in terms of fundamentals, if or once QE really starts to translate into significant inflation, possibly even generating a "crackup boom", then it would not at all be suprising to se a gold bubble burst, with the price correcting as people start to focus more on just getting basic commodities and foodstuffs while the s**t hits the fan. Hence the current boom in many agricultural commodities as noted by Jim Rodgers for the past decade is to an extent far more sustainable, and makes sense given the rising purchasing power of the East.
On the other hand, if we simply carry on approximately like we are going, then I pretty much also see a correction in its price occuring nominally, The only way I see Gold gaining a permanently high exchange ratio in relation to other commodities, is if it somewhoe begins to be used as a medium of exchange(even if that is only in part of Malaysia for instance), making it a far better store of value givent he convertibilitiy of currency allowed for by modern finance(excluding government restrictions).
At the moment it is not much more than a specuative capital asset that does understandably well in times characterised by economic uncertainty and fears of price inflation. I say this as someone who enthusiastically bought Gold about 2 years ago and continue to hold on to it, though tbh I have been considering my options, as always.
"When the King is far the people are happy." Chinese proverb
For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
iirc, it's malinvestment. bubbles happen w/o government.
btw india bought a lot of gold with taxpayer money...
How much substance is there to all the "gold manipulation" conspiracy theories, really? One story from earlier this year looked like a genuine crooked scheme of global proportions; but then I wonder if the articles covering that story were a bit sensationalistic in their coverage.
(Apologies if that story was discussed earlier here, as I'm sure it was.)
Sieben: "How can we tell if this is a bubble? What will pop it? "
OBF: "..........Ultimately however,hindsight is 20:20, meaning the only way to know for certain if we are in a "gold bubble" situation now will probably be in 5 or 10 years from now,looking back. Even then, it is a matter of individual perception- after all, "one persons mountain is another persons molehill". I can think of two good reasons for buying gold now: [1]as part of a fully diversified long term savings plan. As part of a long term savings plan for money that cannot afford to be lost, a certain percentage of total savings is always allocated to gold bullion. This gold is bought regardless of current price or supposed future outlook for the gold market. My long term savings plan recommends that you _always_ keep a certain percentage of your savings in gold, come what may [and so the question of whether or not gold is or is not in a bubble right now is not even an issue]. or, [2] as a short to medium term speculation for those who think that gold is either [a] in a bubble that still has a long way to go upward [and therefor takes a "long position" betting on continuance of the upward trend] , or [b] is "an accident waiting to happen" and about to suffer a significant price collapse [a "short" position- profiting from a decline in golds price as measured in $US]. As nobody can predict the future of gold prices, ALL speculations [i.e both long or short positions] should only be made with money that the individual can afford to lose........."
Regards, onebornfree
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