Gold is the Next Bubble

Discussion in 'Commodity Futures' started by MarketOwl, Nov 8, 2010.

  1. Gold. It is the most logical choice among speculators to target as the best risk asset. It is the next bubble. The greatest benefit of gold is that it cannot be denied by fundamentals.

    If oil prices get too high, OPEC will be tempted to bring out more supply thus dampening the price. There is also demand destruction there. Same goes for other commodities. But gold trades on pure speculative fervor. It has very little intrinsic or industrial value, a small portion is used for jewelry, which is based on perception. There are many other elements rarer than gold which aren't used for jewelry. The fact that gold has been used and sought after as money doesn't mean anything in this fiat world where money is not backed by gold.

    The story sounds good. Banana Ben is hell bent on continuing to print money to finance the Treasury budget deficit and to goose the economy. Since printing money is a very inefficient way of lowering the unemployment rate, the Fed will have plenty of fodder to print more money as the unemployment rate stays high despite lots of QE2. So they will print more, because if 600 billion is not enough, maybe 6 trillion will be. If 6 trillion isn't enough, maybe its 60 trillion. As long as the banks and the financial markets want it, they will get it. We know Bernanke is the sugar daddy and he will deliver. All this money printing of course encourages the search for other currencies, and of course, gold, which will be considered the best currency as other nations competitively devalue.

    The chart is beautiful. It is a perfect example of a chart that is about to go parabolic. A very long uptrend built over several years with momentum rising every year. It reminds me of the Nasdaq in late 1999. Crude oil in early 2008.

    From looking at past bubbles, from the liftoff point where the market was basing usually was a move of 50%-60% to the top. The Nasdaq took off on a relentless uptrend from 3000, going from 3000 to 5000 in 3 months. Gold has been basing between 1100 and 1250 for the past year before starting its liftoff on the QE2 announcement taking it up to 1397. Based on past analogs, we can expect a 50% move up at the minimum from that base, so a range of 1650 to 1875, on the conservative side. If we get a 60% move, it would be a range of 1760 to 2000.

    The best way to take advantage of this is to buy gold, silver, platinum, or palladium.
  2. Nasdaq stocks never claimed to be a store of wealth. Most could have just as easily sold off to zero instead of -78% on the index.

    Gold can have a supply of scrap jewelry tempering its price. But Gold is a good indicator of when equities will bottom, and it leads on the way down (2008, followed by Oct. 08 bottom for gold)

    You should read the Economist article about Gold recently:

    The article quotes Tim Lee (who explicitly called the credit crisis in 07, the S&P bottom (710 target) in mid-08 , the Yen rally (70 target) in mid-08, among others things, 4-6 mths in advance with the correct prices) Tim Lee uses the chart in the article to suggest that gold and home prices / CPI have an interesting long-term relationship, and that gold should be trading around $480 an ounce.

    "Our chart is smoothed but it apparently takes just 153 ounces of gold to buy the median new home. (Wouldn't it be great to turn up with a gold brick to a house showing and say "I'll take it. Here you are, mate"?)"
  3. BCE


  4. The *DEBT* is T.H.E. bubble of ALL times. It can *NEVER* be repaid. The people buying gold have figured out that the emperor has no clothes.

    Gold is just money...
  5. m22au


    I'm in broad agreement.

    Gold would fall by a lot (look at what happened in late 2008) if central bankers stopped being overly loose with their monetary policies.

    However the likely scenario is that central bankers continue to print money, which debases the value of paper currencies.

    Instead of thinking that gold rose from 300 "US Dollars" to 1420 "US Dollars" in the past decade, you could flip that upside down and see that the "US Dollar" declined from 1/300 gold ounce to 1/1420 gold ounce.

    And for me, 1/1420 gold ounce is very expensive if you consider that it's likely that there will be more printing of "US Dollars" in the months and years to come.
  6. Yes, its like CONFETTI anymore. Nobody EARNS money, they just GET it from the government, it seems, who somehow sell bonds to the Fed to raise it.

    And yes, I'd agree, its the value of the PAPER that's the bubble, not gold.

    Gold just IS.
  7. Gold is severely undervalued. You just have to be able to look beyond the end of your nose to see it.