Three Reasons Why There Is No Gold Bubble

Strange to be that definitive, but here are three reasons why there is no bubble in the biggest precious metal market.

I know, it's hard to ignore when folks like George Soros are out telling everybody who'll listen that gold is in a bubble state--that is, well on its way to wildly overvalued followed by a big crash--but it just can't be true.  There are several reasons for this, and here are three.

Gold is off historical high values.  Granted, you've never seen gold weigh in at twelve hundred bucks an ounce like it did back in December 2009.  And yes, that IS the highest absolute price it's ever achieved.  But the last time gold was this high was back in 1980, where gold was valued at eight hundred seventy three bucks an ounce.  When adjusted against inflation, that eight hundred seventy three is actually worth about twenty two hundred bucks today.  Today's twelve hundred is 1980's (roughly) five hundred, so that's easily below standard.

Gold is consumed every day.  I think Soros has forgotten one small detail--while the bulk of gold is still in its original form, in bars and coins and jewelry in people's drawers and safe deposit boxes--a small portion of it is consumed in industrial processes.  It goes into electronics of all types and descriptions every day, and most of this will not be recovered later via recycling.  Admittedly, this is only a very small portion of the total gold market, but the loss is there.  And scarcity of anything improves value, so a hike in gold prices should be expected, and not regarded as a symptom of a bubble

Gold looks good against currency in sovereign debt issues.  Currency in the five biggest economies looks pretty bad right now.  Greece is only the start of what's being suggested as a massive day of reckoning for major economic powers the world over, including the United States.  "Austerity" is starting to be heard more and more often, as is "civil unrest".  And when currency starts to slip, gold's value goes up--not because gold is inherently worth more, but because the currencies used to PURCHASE gold are worth LESS.  Gold is regarded as a store of value for this exact reason.

Is gold overvalued?   That's debatable.  But is gold in a bubble?  I would say not, and have three good reasons to say so.

Your code to embed this article on your website* :

*You are allowed to change only styles on the code of this iframe.


Add your Comment