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Gold a bubble or reflective of the real price of gold

I gold in a bubble right now?

  • Yes

    Votes: 7 58.3%
  • No

    Votes: 2 16.7%
  • I'm not sure

    Votes: 3 25.0%

  • Total voters
    12

Missed AB

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Is gold a bubble, or does gold reflect the real price in today's world.

I ask this because there are a lot of reasons to hold gold. There are a lot of reasons to invest in gold. But there are very few reason I see to continue to buy gold at these prices.

I fear inflation, so I am hedged in foreign bonds.

I fear a future spike in inflation, so I am short US 30 year bonds.

Gold continues to be mined. There are very few industrial uses for gold. Gold does not degrade/rust, so as in oil the more you use the less you have.

Talk of gold as a can never lose bet, makes me think we have entered bubble time.

I think it may have more legs, but in 2005 the realestate market had some legs left too...
 

Hoplite

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Invest in practical real-world skills. MUCH more valuable than gold, especially if things go belly up.

Perceived value is never a sure thing.
 

Goshin

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Personally, I think bubble, mainly because the price of silver hasn't gone up nearly as much.

Historically, gold and silver usually traded at like 1 to 20, up to maybe 1 to 50, IIRC. Now it's way beyond that.

It depends on what the economy does. If the economy goes completely in the crapper, gold will shoot up to maybe 2k. If the economy starts to come back, I think the gold bubble is going to burst and gold will drop back down a good bit. If the economy remains uncertain, it will go up a little, down a little, but trend slightly upward, until things start looking better.

Gold is basically more of a value-store than an actual growth-investment, really... and I think the biggest growth is probably already past, unless the worldwide economy really goes belly-up.

JM0.02
 

phattonez

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If I knew then I could be making a lot of money. I mean, I see inflation coming if another round of quantitative easing is implemented, but I don't know if it's overvalued right now. Who's can know with complete certainty?
 

oldreliable67

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Since the early '80s, a core portion of my portfolio has been numismatic coins, with a concentration in Morgan dollars minted at the Carson City mint. Some Silver Eagles and bullion silver as well. Except for various short periods of time, I have avoided gold, and just recently (over the last two days, actually) sold my gold position. I have historically keyed my gold position off of movements in crude oil, making judgments on their relative value; mostly (but not always!) this approach has worked pretty well. As of this moment, I anticipate a continued slow-growth economy with low inflation, hence, feel that both crude and gold have limited upside unless or until the economy shows signs of accelerating growth or inflation (or both).

Now that, and $1.95, will get you a cup of coffee at Starbucks!
 

Ahlevah

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I have historically keyed my gold position off of movements in crude oil, making judgments on their relative value; mostly (but not always!) this approach has worked pretty well. As of this moment, I anticipate a continued slow-growth economy with low inflation, hence, feel that both crude and gold have limited upside unless or until the economy shows signs of accelerating growth or inflation (or both).

Now that, and $1.95, will get you a cup of coffee at Starbucks!
Considering that crude oil supplies in the U.S. are near a 27-year high, that's probably not a bad idea. Some day soon you might be able to buy refined products at your local Starbucks, since oil companies can't seem to sell them at Wal-Mart.
 

Goshin

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Since the early '80s, a core portion of my portfolio has been numismatic coins, with a concentration in Morgan dollars minted at the Carson City mint. Some Silver Eagles and bullion silver as well. Except for various short periods of time, I have avoided gold, and just recently (over the last two days, actually) sold my gold position. I have historically keyed my gold position off of movements in crude oil, making judgments on their relative value; mostly (but not always!) this approach has worked pretty well. As of this moment, I anticipate a continued slow-growth economy with low inflation, hence, feel that both crude and gold have limited upside unless or until the economy shows signs of accelerating growth or inflation (or both).

Now that, and $1.95, will get you a cup of coffee at Starbucks!

Not to tell you your business, but I'd be a little cautious about numismatic coins. If I understand correctly, their value is chiefly collector value. That's fine as long as the economy remains in good enough shape that collectors still have money to burn. If the economy goes south in a big way, collector value can evaporate faster than you can say "fiat money".
 

oldreliable67

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Not to tell you your business, but I'd be a little cautious about numismatic coins. If I understand correctly, their value is chiefly collector value. That's fine as long as the economy remains in good enough shape that collectors still have money to burn. If the economy goes south in a big way, collector value can evaporate faster than you can say "fiat money".
Have been thru several econ cycles with these things (since mid 1980's), and thus far have been very pleased at the way they have held their value throughout the cycles. Right now, I have a return far in excess of that which could have earned on equities, even when compared with equities at their peak. But, like any asset, if one is forced to liquidate at the wrong time, one is exposed to significant risk of loss. These are not intended to be traded, but have been and will continue to be held for the very long term. I expect to leave them to my kids. Now, gold, thats another matter...
 

washunut

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Considering that crude oil supplies in the U.S. are near a 27-year high, that's probably not a bad idea. Some day soon you might be able to buy refined products at your local Starbucks, since oil companies can't seem to sell them at Wal-Mart.
I agree that there is a glut of oil. Can't understand how the price has not collapsed. How does a commodity market not reflect supply/demand? If we knew that oil was going to fall the $40 a barrel, the direction for gold might be clearer.
 

washunut

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Not to tell you your business, but I'd be a little cautious about numismatic coins. If I understand correctly, their value is chiefly collector value. That's fine as long as the economy remains in good enough shape that collectors still have money to burn. If the economy goes south in a big way, collector value can evaporate faster than you can say "fiat money".
Tell me about it. I collected stamps as a hobby. It miht have been fun but I would not say profitable. Coins at least have the downside protection of the silver content going up in value.
 

oldreliable67

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I agree that there is a glut of oil. Can't understand how the price has not collapsed. How does a commodity market not reflect supply/demand? If we knew that oil was going to fall the $40 a barrel, the direction for gold might be clearer.
Most commodity markets, certainly the more actively traded ones, do indeed have an underlying reflection of supply/demand. But on top of that, you must add a large layer of speculative activity (usually referred to by commodity market mavens/apologists) as 'price discovery.' Sometimes supply/demand considerations dominate price movement, but absent fundamental developments, its almost all spec trading: locals and upstairs traders swapping green pieces of paper for blue ones and vice-versa and hoping to take a tick out of the middle.
 

Guy Incognito

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Historically, gold and silver usually traded at like 1 to 20, up to maybe 1 to 50, IIRC. Now it's way beyond that.
[...]]Gold is basically more of a value-store than an actual growth-investment, really... and I think the biggest growth is probably already past, unless the worldwide economy really goes belly-up.
This is exactly why I'm so skeptical of gold right now. It only makes sense that gold and silver would move in tandem, and I think the exaggerated price of gold is due to the general climate of economic fear over the past few years.

At this point I think the general view of the economy is getting more optimistic, so we can probably expect the gold bubble to burst as optimism returns.
 
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washunut

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This is exactly why I'm so skeptical of gold right now. It only makes sense that gold and silver would move in tandem, and I think the exaggerated price of gold is due to the general climate of economic fear over the past few years.

At this point I think the general view of the economy is getting more optimistic, so we can probably expect the gold bubble to burst as optimism returns.
Not sure I would agree with two points. First not sure why gold and silver need to move in tandem. Gold seems more of a hedge for a currency devaluation while silver has some of that but is also used in industry.

On the economy improving, while that may be somewhat true it is still below trend and is still on the life support of a $1.3 trillion federal buget deficit and the expanded balance sheet of the fed.
 

Guy Incognito

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Not sure I would agree with two points. First not sure why gold and silver need to move in tandem. Gold seems more of a hedge for a currency devaluation while silver has some of that but is also used in industry.
Well, to an extent I would expect all precious metals, including copper and platinum, to move in tandem because they all function as a bet against the economy. You're right that the industrial uses of other precious metals can impact their market price, whereas gold has no use, but if anything doesn't this make the higher price of gold even more out of whack?

I'm not sure why they do move together, or if there is any reason they must move together, but historically gold/silver has been at that approx. 1/20 ratio Goshin was referring to.

I could be wrong though. I tend to ignore the emotional factors of the marketplace. People just like gold, and there is value in that.

On the economy improving, while that may be somewhat true it is still below trend and is still on the life support of a $1.3 trillion federal buget deficit and the expanded balance sheet of the fed.
I agree, but with gold at the price it is at right now, I just don't feel like it's a good buy even if the economy does tank. Gold is in a bubble because of people hedging against a crash, but in the event of a crash all precious metals would go up, no? Making silver the better buy.
 
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cpwill

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Gold is a good temporary hedge against what is coming down the pike. i have about 25% of my stuff in a commodoties mutual fund that includes gold; and it's been my money maker for the past two years. basically i'm looking to sell as soon as they start looking to raise interest rates and then re-buy a few years after that when they start looking at monetizing the debt.
 

Missed AB

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Not sure I would agree with two points. First not sure why gold and silver need to move in tandem. Gold seems more of a hedge for a currency devaluation while silver has some of that but is also used in industry.

On the economy improving, while that may be somewhat true it is still below trend and is still on the life support of a $1.3 trillion federal buget deficit and the expanded balance sheet of the fed.
If 30 ounces of silver buys you 1 ounce of gold historically, then one needs to consider the overvalue of gold. One could make the case that silver is undervalued if gold is fair value. But I don't see any reason for the divergence.

As you bring up the demand for gold is mainly by central banks and ETF. While silver has industrial and the same monetary uses. Gold has only monetary uses. (each have jewelery uses).

Silver is also included with other raw materials to make other products including medicine. Silver's use requires the destruction of raw sliver in the pure element form.

Gold continues to be mined and more put into supply. For the most part every ounce of gold EVER mined still exists today.
 

Missed AB

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Gold is a good temporary hedge against what is coming down the pike. i have about 25% of my stuff in a commodoties mutual fund that includes gold; and it's been my money maker for the past two years. basically i'm looking to sell as soon as they start looking to raise interest rates and then re-buy a few years after that when they start looking at monetizing the debt.
Historically, gold retreats very quickly.

The "smart" money is where the bubbles are. The "dumb" money is where the smart money isn't. Be ahead of the next trend not following it. emerging markets will give much better returns over gold in this phase of the economic cycle, then followed by US and European sector large caps in the next cycle.

If US GDP numbers are in line or over 2.4% growth, this "should" signal the start of the move from gold to stocks. Gold may have more legs up, but 2500/ounce price early 80's inflation adjusted number, is an interesting number.

The historic gold hedge is no longer the best option.

If you are concerned about what's coming down the pike, then there are much better options. You can short 30y T bonds. You can buy currencies on Forex, or in the form of an ETF such as FXE... Gold also does not pay dividends. If you think the economy is going to collapse, buy some put options on DIA/SPY/QQQ. You don't like options buy DOG. If you think inflation is going to accelerate buy some TIPS bonds. There are a lot of ways to "protect" yourself from what's coming down the pike, and 25% in one basket is quite risky by any standard! Seems like it's time to re-allocate your assets in your portfolio...
 

Missed AB

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but in the event of a crash all precious metals would go up, no? Making silver the better buy.

Even when a crisis arises, gold is NOT the safe haven people believe it is. Spot gold prices London exchange in 2008 have an ounce of gold around 950/ounce Jun2008. We all know what happened august/september/october....
October 31 about 720/ounce. It traced the economic cycle, it did NOT counter the negativity.


London Fix Historical gold - result
 
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