I think we agree on many things, just two additional notes: * Premium goes up if the market expectation for bigger volatility increases. This is true for sharp rallies as well as on sharp downturns. Look at the VIX after the 1994 sideways grind. The SPX went from 450 to the 800s in 1997 while the VIX doubled from the lower 10s to the lower 20s. More recently, look at the increase in Gold option premium during the run from 1000 to 1200. It's not like buying gold put premium became cheaper just because it rallied sharply to the upside. Quite to the contrary. * Regarding 1995 and labeling the Nasdaq a "bubble", "mania" or "a crowded trade", I found Klarman's letters very interesting. The following was incidentally written in Dec 1995, not 1998 or 1999: For the last five years, the S&P 500 has returned 17.2%, while the NASDAQ Composite Index has returned a staggering 25.7%. Assuming a 10% long term rate of return from equities, the NASDAQ would need to drop a whopping 49% tomorrow to simply return to trendline for the latest five year period. [...] Anecdotally, too, this market is greatly overextended. People with no previous investment experience are starting hedge funds. Everyone seems to know someone who owns stock in a company that has just come public, not to mention the certifiable mania among the general public to own mutual funds and Internet stocks. Just a few days ago, the last remaining bearish Wall Street market strategist turned bullish, arguing that the "valuation paradigm" had changed. It took him five more years of patience and discipline for his stance to be vindicated (PDF version downloadable here: http://www.scribd.com/doc/14576127/Baupost-Fund-Letters )
It seems like a wave of bearishness has taken over the goldmarkets and it's pronosticators. It's hip to be bearish on gold. Even the goldbugs themselves are bearish. Haven't read any gold to explode in 2010 talking head. Except Peter Shiff ofcourse.