Not even close to a bubble. If you want to see a bubble dig up gold/silver charts from the beginning of 1980 (30 yrs ago) when gold hit $850. That's roughly $2,250 today when adjusted for inflation so, at best, gold is still about $1,000 below its previous all time high in real dollar terms. And silver hasn't even hit half of what it was back then, and that's with no adjustment for inflation. When you do adjust silver it has barely gotten to 1/6 of its all time high in real dollar terms. Sure, gold had a nice recent run to $1224 but it wasn't even close to parabolic, total panic buying. Hopefully in the next year or two...
FWIW, my personal view is that it's not a bubble... Disclaimer: I own some gold. In my view, gold/silver is one of the few portable physical assets that can be used to diversify and hedge some disaster scenarios. So, here's my question, how does one go about determining whether a premium paid for an insurance policy is too high or too low?
I'll believe gold is in a bubble when I personally know somebody besides my self who owns the physical metal.
To really know if gold is in a bubble, check out the link: http://jessescrossroadscafe.blogspot.com/2009/11/how-can-you-tell-when-gold-is-in-bubble.html I own several junior miners. Waiting anxiously for half of those kind of returns.
Bubble or not I DCA physical every month. I dont own many tangibles; just my house, belongings and gold. You must own some tangibles if your capital is at risk daily in the financial markets.
Cost of production isn't a big factor for gold though. The reason is that annual gold production is a small fraction of the total potential gold supply - most gold ever mined is not actually used up, it is stored either as bullion/reserves, or as heirloom jewelry which in the 2nd/3rd world is a de facto store of value. So large changes to annual gold production don't have anywhere near the same impact as they would in most commodities. Take a look at Jack Schwager's book on fundamental analysis, it goes over this and other useful points regarding valuation of commodities. Secondly, bubbles normally have a giant parabolic blowoff move near their end, along with major speculative participation. For example oil going from $50 to $147 (100% above it's earlier high), the nasdaq going from 2400 to 5000 in 6 months etc (110% above its earlier high). Gold went 20% above its earlier high, I don't think it's gone parabolic yet.
What does it matter if they're a bubble or not? Both could easily rally or tank 50%+ from here, bubble or not. I find these discussions completely worthless (in order to try to gain an edge to make money trading a market).
Makloda, is it true the strategy of buying physical gold and burrying it in your backyard has outperformed 90% of all hedge funds this decade? If so then there it is, the edge that you are looking for. All you need now is a spade.