Sunday, August 28, 2011

The Idea That Gold Is In A Bubble Is Idiotic

And the promoters of this idea are complete morons or completely corrupt.  This morning I heard an ad on the radio by an outfit called Empire Diamond explaining that they wanted to pay the best price in the market to by your gold and silver in any form (i.e. jewelry, silverware, junk, etc).  Their tagline was "Don't wait for the price of gold to drop before you sell."  LOL.  Then I open the front section of the Denver Post and the center pages featured a full-color ad from The Great Estate Roadshow, which will be set up in 4 locations around Denver all next week and it wants to buy any and all scraps of gold/silver that you want to sell them.  The ad was like a Playboy centerfold featuring a very detailed reproduction of all the items the outfit will buy.   This ad is not cheap and neither is the event being staged, meaning that some outfit is spending a LOT of money to try and coax the public into unloading their gold and silver in any form.  The question is, who wants to buy it so badly?  It also indcates that public is still selling a lot of gold and silver and has a lot left to sell.  That is not the sign of an asset in an investment bubble.

Every time I turn on the news media or open the newspaper I encounter "experts" and gold/silver buyers counselling the public that price of gold is going to fall.  They never ever suggest that the price might actually go up.  Contrast this with the internet/tech stock bubble and then the subsequent catastrophic housing bubble:  how many promoters were telling the public that the price of these "investments" could actually drop? 

It never ceases to amaze me the extent to which profit-seekers will go to in order to separate the public the from their money.  For anyone questioning the strength and longevity of the gold bull, I ask you to consider that the marquee indicator of an investment product in the peak frenzy of a bubble is the endless aggressive promotion to seduce YOU into buying THEIR investment - not THEM seducing YOU to sell them your's.  Some things will never change and snake-oil salesmen fleecing the public in one way or another is one them and the idea that an investment can be considered a "bubble" when the public is still being aggressively seduced to sell is another.

That so few of people in this country understand why gold and silver are doing what they are doing further adds to the basic fundamental factors pushing the precious metals higher.  This is reinforced by the fact that so few large institutional investors understand the dynamics driving metals higher and fiat currencies lower.  In fact, I saw one "expert" mutual fund manager recommend getting long the dollar last week.  Next time you hear that gold and mining stocks have peaked and the bubble has popped, open up the quarterly report from your favorite mutual fund and see what percent of the fund is invested in mining stocks.  I would bet it has no exposure.  Until you see your mutual fund investments heavily invested in precious metals and mining stocks, you can be assured that the bull market in this sector has a long way to go.


  1. Dave you are so correct, we have the same here in the UK,"....get rid of your worthless Gold for CASH"
    they say, ( although mostly they are having to pay spot or just under for it)- Dave, UK

  2. When everyone has Gold and there is no one to sell to, THEN gold is in a bubble. BUT, as most peeps dont have any gold we are a long way off that day, so keep buying the physical


  4. If things are really as bad as you indicate, might it not also be wise to stockpile food and trading goods like cigarettes and whiskey and have an arsenal of guns and bullets?
    And a supply of gasoline etc.
    I remember the survivalists in the 1970s
    I remember1971
    I remember the Watts riots and the Rodney King riots
    I know things can get really bad
    And I know they could get much worse than they have been before
    the cities may have the worst of it

  5. These guys did OK...

    Link: Northwestern Mutual Makes First Gold Buy in 152 Years
    June 1, 2009 (Bloomberg) -- Northwestern Mutual Life Insurance Co., the third-largest U.S. life insurer by 2008 sales, has bought gold for the first time the company’s 152-year history to hedge against further asset declines.

    “Gold just seems to make sense; it’s a store of value,” Chief Executive Officer Edward Zore said in an interview following his comments at a conference hosted by Standard & Poor’s in Brooklyn. “In the Depression, gold did very, very well.”

    Northwestern Mutual has accumulated about $400 million in gold, and Zore said the price could double or even rise fivefold if the economy continues to weaken. Gold gained 10 percent last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years. Gold futures for August delivery slipped $4.80 to $975.50 at 4:03 p.m. in New York.

    “The downside risk is limited, but the upside is large,” Zore said. “We have stocks in our portfolio that lost 95 percent.” Gold “is not going down to $90.”

  6. Dave,
    Stoneleigh at The Automatic Earth persuasively argues that gold/silver are headed for a fall:

    Both of you have very persuasive, intelligent arguments leaving the average schmuck like me completely baffled as to which way to jump.

    Your thoughts?

  7. (Dave)

    Sam the Automatic Earth misses a several key points and I vehemently disagree that we are about to enter a period of deflation. Au contraire, I believe that Central Bank monetary printing is about to accelerate. Sure if politicians were willing to do the right thing and let free markets shape the future, we would likely go into a deflationary tailspin. I do not see politicians ever doing the right thing.

    #2, the if the Fed and the ECB were the CB's doing the buying, it might fit his premise that CB buying is a contrary indicator. But it's the eastern hemisphere CB's that are buying and now the South America CB's. I don't believe any of those CB's were selling and thus don't fit his neat little CB's sell at the bottom and buy at the top model. It was the BOE that unloaded at the bottom and the Fed has been selling/leasing the Treaury gold for a long time. These two facts undermine his model here.

    Finally, who is the "everyone" that has been using gold as a safe-haven? I know very few individuals and big institutional investors in this country who are doing that.

    I think Mr. Stoneleigh needs to do a lot more research on the facts and history of the gold market and dynamics driving the price of gold. For instance, gold has been in a supply deficit since like 1996 that was being "bridged" by the ECB, BOE and Fed. Now that the ECB is no longer selling and many Asian CBs' plus Russia and India are buying, that deficit is much bigger.

  8. (Dave cont'd)

    I love that guys like Automatic Earth are calling for big move lower for gold. It reinforces the idea that bull markets climb a wall of worry.

    To be sure, I have been expecting the current correction to be a lot bigger than it appears might be the case. We removed our aggressive trades a couple weeks ago but are now debating reloading (over and above our core holdings).

    I have no idea what path it will take, but I will be AE guy my last silver eagle that the metals will be a lot higher two years from now.

    There are some other things I find problematic with his view, but those are the main things.

  9. Thanks for the detailed response, Dave. Guess I'll keep my mitts firmly wrapped around my small stash of pm's. :)

  10. Shhhh, I need it to fall just a little lower to make my next buy ;0)

  11. The deflationists have it right and wrong at the same time-- we are already in deflation, but not vs. the dollar. We are in deflation vs. the precious metals.

  12. I couldnt have said this better myself.

  13. Every time I hear that there is or will be deflation, I feel I must ask the questions-

    "Where is the deflation? Is it in the cost of food? Is it in the Cost of medicine? Is it in the cost of health insurance? Is it in the cost of car insurance? Is it in the cost of taxes?"

    For those who are quick to point towards housing as the source of deflation I am quick to point out that housing was a bubble, a real bubble, it went up too fast too soon and is coming down to real world affordability.

    Add in all of the money printing that is going on in the US and the arguements supporting deflation fall apart. One definition of inflation is too much money chasing after too few goods. This is what has been going on for decades.

    Something to think about when it comes to the real price of gold-

    The information is a bit old but it is food for thougt.

    How high can gold get? a better question is "How bad will infation get?" or "When will the Fed do a Volker?" (spike interest rates to really fight inflation)

    Find the answers to those two questions and then we can figure out when gold will have reached its real future all time high.

  14. The "Tokyo Rose" of PMs has done his job well hasn't he?

    You can thank kitco's Jon Nadler for EVERY SECOND of this pain!!!

    When you're don't "thanking" him- cut him down from the tree before he stinks up the place- more.

  15. Governments are buying and hoarding gold, most people don't own gold, and the gold that is mined is limited...What bubble? Only an idiot or liar would say gold is in a bubble!! When everyone owns gold (or buys gold for investment like the dot com or housing) and the price is around $10k per ounce then you can say bubble but if fiat currency keeps being printed to pay increasing debt around the world then there is no bubble but a change of world currency!!

  16. As a professional numismatist of 24 years, we have been buying huge amounts of scrap alongside some serious coin collections. Last Wednesday, our New York office spent $250,000 buying. More than half of it from one client selling gold coins.

    As for a bubble, definitely not. In London I have 10 sellers for one buyer.

    That will not reverse until the economy picks up and people start making money again.

    Then they will return and buy the coins they sold to buy food or pay the mortgage or meet their payrolls.

    But what I really want to say is the amount of people we have saved from ruin. It is all well and good being high and mighty about us misleading people to sell, but you do not sit in front of the people whose houses, and business we saved, using my savings, my children’s inheritance.

    Are we not allowed to make a profit?

    I personally had a lady last week with eyes brimming with tears selling literally everything she had to pay bills. We worked on the thinnest of margins to help her out, about $2 a gram profit. I AM LOSING MONEY ALREADY.

    Money that is my families, my children’s future and everything I worked to save. Ten years ago we couldn’t give gold away at $250 an ounce, now everybody is an expert and we are parasites.

    According to 24Hourgold the premium on silver is 30% above spot, yet it will never ever be bought for such a premium, so fools are listening to idiots like Glenn Beck and just giving money away. When they sell, and I give 10- 20% below spot I am again called a parasite and Beck is the hero.

    Gold and rare coins are financial insurance. Quality, physical assets that provide emergency funding when you need it most. The market is functioning exactly as it should, and we are providing liquidity- for a profit- to people who need it most.

  17. (Dave)

    Great commentary Mad. Thanks! Hope you don't mind but I'm going to turn your comment into a post today.