Gold – The Ironic Bubble
It’s impossible for anyone to be 100% certain as to where the markets are headed but my beliefs and reasoning tell me that gold is in a major bubble and, as with all bubbles, it’s going to burst.
The reason I call it “the ironic bubble” is that it’s supposed to be the “safe haven” investment. It’s supposed to be the investment that people go into to protect their wealth against inflation and play it safe. The media tells us to buy gold because it can’t be printed the way that money can. It’s a real asset. It has real value. Money is just paper. Some people say that stocks are just paper too. While those statements are true, if we are going to use that kind of childish logic, I might as well say that gold is just a rock. Open the following link in a new tab and analyse the dramatic rise in the price of gold over just the past few years. Also note when it was steady and how it just held it’s market price for over a decade not too long ago.
Here’s the thing: Gold has skyrocketed in price because so many people bought into this kind of herd mentality. What’s the upside now? Sure it could go a little higher before the bubble pops but the current price really makes no sense and will ultimately fall sharply. Speculation is keeping the price high, not real demand, and that spells bubble. But people are sheep so it’s no surprise to watch them behave as such.
There is a lot of fear in the markets right now because of US debt and the European banking crisis. This fear is already priced into gold’s price. Demand is higher than before but not nearly enough to account for the skyrocketing price over the past 3 or so years.
The US owes China a lot of money which is no secret. These 2 countries have a lot of power and although they aren’t the best of friends all the time, they are committed to making their relationship work. They need each other. The US would love to just send paper money over to the Chinese but they know that isn’t a realistic option.
Stocks are very cheap right now and companies are posting massive profits. The banking crisis is going to get solved somehow. The debt will be handled somehow. I can’t envision a scenario that will push gold a lot higher but I can certainly think of lots of reasons for it to drop and drop fast. Once the price of gold starts to fall, it could be in a quick free fall because demand isn’t keeping the price where it is at. It’s speculation. If you don’t think the world is coming to an end then get rid of gold. It’s too expensive. It’s too risky. If you do think the world is coming to an end, buy a bunch of blankets, candles, and canned goods. Neither gold nor cash will do you any good in that situation.
