The Gold Bubble That Never Was
Ask any nutcase investor or investment group [not mentioning any names], if there is a gold bubble or commodities bubble and they will talk your ear off telling you point by point why there is one. Some how I believe they don’t know what the word bubble means. Oh, don’t get me wrong, they are really clear on the artificial inflation i.e. conspiracy part of it, but they fail to realize the part where it has to be widespread and popular.
So everyone is on the same page, let’s define this bubble word:
Bubble: An economic bubble (sometimes referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, or a speculative mania) is “trade in high volumes at prices that are considerably at variance with intrinsic values”. Economic bubbles are generally considered to have a negative impact on the economy because they tend to cause misallocation of resources into non-optimal uses. In addition, the crash which usually follows an economic bubble can destroy a large amount of wealth and cause continuing economic malaise.
Now let me add to that, there has to be a popular and widespread sentiment to invest in the item to even qualify it as a bubble. Ergo, you can’t have a “bubble” if only 100 people are investing in it. A bubble has to be damn near nationwide – a housing “bubble” / a dollar “bubble”.
Ok with that definition let’s return back to our question: Is there a gold bubble, is there a commodities bubble. Clearly, the answer is no. In fact Jim Rogers, Peter Schiff and many, many far more intelligent investors than I have said gold should be trading at $2,000 / oz. A foreign investor said gold should be trading at $5,000 / oz USD. I have it on good authority that gold has been surpressed for nearly 30 years. So if you take that into account, the $5,000 / oz USD does not seem outrageous at all.
One thing Jim Rogers did say however, is that do not lay all your eggs in the gold basket. He said to spread it out through many commodities. And, as I said in a prior post that high end manufactured goods depend on commodities, if that market collapses, so will the high end markets.
Note that China has told their citizens to buy gold. Note that India did also, and are forking over major cash to buy gold. Could there be something on the horizon that they are privvy too that we are not?
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