Gold and Silver 'Bubble' Has Long Way to Go

On Oct. 27th, 2008 Goldcorp (NYSE:GG) closed at $15.06. Agnico-Eagle Mines (NYSE:AEM) closed the same day at $21.70.

Fast forward less than eleven months later to Sept. 16th, 2009. GG closed at $42.93 and AEM closed at $71.27. Over a 200% gain for GG and over a 300% for AEM. That would amaze even the most enthusiastic gold bug.

When it comes to silver, on Oct. 27th, 2008 Silver Wheaton (NYSE:SLW) closed at $2.59 and Silver Standary Resources (Nasdaq:SSRI) on the same day closed at $6.19. On Sept. 16th, 2009 SSRI closed at $23.34 and SLW closed at $13.21. Holy guacamole.

So in less than 11 months SLW is up almost 500% and SSRI is up almost 400%. And although this looks like a giant bubble, it is more like an upside correction to a greatly exaggerated, downside over-correction back last October.

Chris Weber, writing for Steve Sjuggerud's Daily Wealth made some observations that I have to agree with and is confirmed by my own experiences. He writes:

This bullish sentiment has led many people to ask me if gold is far too popular now... or even in a "bubble.

My answer: I see nothing like a bubble yet. Ask your friends or neighbors these questions:

"What do you think about gold or silver as an investment?" and if they answer in a positive manner, further ask: "What are the best ways to own it? How do you own it? What percentage of your assets do you have in the precious metals area?" If this seems too invasive, ask, "What percentage of a person's assets do you think should be in the precious metals area?"

Thursday gold slipped back below $1,000 and silver to $16.27. This scares the uninformed and the unconvincted, and sets the stage for the next big move upward for gold, silver, and the producing-mining stocks.

As Chris Weber said at the end of his article,

When everyone you know is talking about how to make "easy money" buying gold or silver, then we may be in a different era. But right now, I think both metals have more room, and most likely much more room, to go.

I couldn't agree more.

DISCLOSURE: I don't own any of the stocks mentioned directly, but they are in a mutual fund that I'm invested in (the DWS Scudder Gold & Precious Metals Fund, Symbol:SCGDX).

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content.

Comments

[Chuck Anthony:]

Thanks, Marc. I track and sometimes trade GLD based on the charts. I've noticed gold challenging the $1,000 mark five times since March '08 only to be turned back each time. Last week though, gold closed above $1,000; perhaps an indicator that we gold bulls could have additional strength for higher ground. Will be interesting to see where gold closes today.

Sep 25 09:24 AM

[Hal.P.:]

I agree with your thoughts too. I don't think we anywhere close to a bursting bubble of gold. The debt our country is taking on and the printing of money, let alone the use of that money to buy our own debt is not something that bode's well for the dollar. So I think for now the precious metals are a good place to store the value of ones wealth.

Sep 25 10:25 AM

[Slvrizgold:]

I played golf yesterday with a fellow who is in the steel industry, a well to do guy. He was gushing about how well his Ford stock was doing ("its up 20 cents in pre-market woo-woo!") I asked him about gold it was like I switched to a foreign language. Here's a guy who makes 6 figures and has no idea how to preserve wealth in a bear market nor protect the purchasing power of his large savings and income! The fact that he works in the natural resource industry and is oblivious is a good indicator of how much more "learning" that will take place in the next several years.

I know F has made a great run off the bottom, but my PM stocks have done even better! And unlike F, I NEVER ONCE doubted that my picks were threatened by bankruptcy, so to double down and increase my positions was not a gut wrenching decision!

Sep 25 10:29 AM

[GMiki1:]

Yes, I have wealthy friends who are tiptoeing into gold after I've been hounding them for years. They're cautious on the market, but relying on "safe" fixed rate investments. At any rate, we're certainly not in a bubble. Gold and silver are are of very few investments you can make right now and are very underpriced. I switched from GLD into SGOL--I have a bunch of physical and miners. I also went into the new SILV. And it's true that the rise in many of the miners is merely correcting an incredible, undeserved crash. But I did buy a bunch of SLW at a little over $3.

Sep 25 11:17 AM

[Carlos Lam:]

Here's when I know that the "bubble" has arrived:

1. I see jewelers take down the "Cash 4 Gold" signs and start putting up "Gold 4 Cash" signs

2. My 19 y/o sister-in-law begins trading gold online as a "job"

3. Time, Newsweek, and U.S. News have covers with a man hugging a gold bar on their covers

Sep 25 12:38 PM

[tb1975:]

the calculatedrisk blog publishes a problem bank list every week pieced together from gov't data. It is accurate and up to date as much as possible. Oh yeah, and this blog isn't trying to sell you anything.


On Sep 25 09:08 PM KISSA wrote:

> FDIC keep their Bank Watchlist secret from the public and there is
> a reason to it because many US banks are already bankrupt and FDIC
> can't guarantee deposits anymore.
> We made this list free to all the public, take a look if your bank
> is on our Bank Run list too.
> www.nyse30.com/id45.html

Sep 26 07:58 AM

[mbkelly75:]

I have done well with CEF as it holds both Gold and Silver bullion and keeps them balanced so I do not have to keep track of the Gold/Silver Ratios and balance them myself. They even pay an itty-bitty annual dividend instead of charging me storage. BTW - good article and I agree with you and the others that you quote. Daily Wealth is a great newletter and I have been reading Steven Sjuggerad for many years. He is ALWAYS worth listening to.
Thank You for your work on this.

Sep 26 10:29 AM

[Albertarocks:]

On Sep 25 09:24 AM Chuck Anthony wrote:

> Thanks, Marc. I track and sometimes trade GLD based on the charts.
> I've noticed gold challenging the $1,000 mark five times since March
> '08 only to be turned back each time. Last week though, gold closed
> above $1,000; perhaps an indicator that we gold bulls could have
> additional strength for higher ground. Will be interesting to see
> where gold closes today.

I think another way of saying it might be "in each of the 5 times gold has challenged the $1,000 mark since March, the FED and its tentacles have put a lid on it by selling as much as necessary to ensure the rally fails."

The price of gold is a direct reflection of the insanity at the FED and the amount of liquidity they're producing out of thin air. That amount of liquidity "should" result in rising prices for "everything", but it isn't. It isn't going to help the real estate market one iota. So far, the stock market has indeed been driven in part by the flush of liquidity but as long as the bankers opt to keep all the stolen trillions to prop up their balance sheets rather than lending it (which is what banks were created for), the stock market may not rise much further after all.

Having said that, since the theory is that such massive liquidity "should" make all the world's stock markets rise in a completely unrealistic phantom rally, so should it make gold and all other commodities rise. But the liquidity so far isn't doing everything it was intended to do.

How much longer will the FED insist on keeping a lid on gold? Or maybe more importantly... how long will they "be able" to keep a lid on gold? When I look at the chart of gold prices, I can't help but think of a pressure cooker that's about to blow its lid.

Sep 26 02:03 PM

[Albertarocks:]

Here's a slightly different way to look at the price of gold:

The US federal budget is about 3 $Trillion.
That's 3,000 $billions

The entire mining production of every single gold mine on the planet is 80 million ounces or $80 billion. IOW, the US budget (at today's paltry 3 $trillion) is 37 times as much as all the gold mined on earth every year.

And people are worried about a $30 pullback? When the world finally returns to some level of sanity and figures out what the word "trillion" really means, gold will hit $30,000 an ounce... at least.

Sep 26 03:55 PM

[Economic Di...:]

I think there is a bubble in "gold is a bubble" stories! Very hot topic right now!

Sep 26 06:31 PM

[Laurence Hunt:]

In brief, I think all the evidence is that gold is preparing for a strong run right here, right now. In my view, $1000 gold is our ceiling but Asia's floor. I have no illusions about Asia's problems, but 4 billion Asians are moving forward nonetheless, and gold is central to Asian thought. Why the focus on Asia? They are a new variable on the scene, and very much in favour of the gold price. But the other variables are lining up too. I think all here are aware that we are years away from any bubble of any kind in gold. I don't buy the price suppression theories at all though. The price of gold is an afterthought for the Fed, even the mythologized PPT. There is no conspiracy against gold, there is just a market populated by players with competing motivations. I do think a short squeeze on the Comex would be interesting this fall. The shorts have won for years just by selling short when gold is technically overbought. My maxim - gold can do what it wants to do. Presently, I'm watching the comparison of the present gold chart to September 2007. All we're talking about here really is a bull market. Bull markets rise when they are overbought. That is investing 101. Because rises are sharp, steep and relatively brief (think about 2 days, 2 weeks ago for a recent example), the longer periods of consolidation (and falling prices) shake out the uncommitted. That is simply happening again. Could we see a sharp pullback in the gold price - maybe this week? Sure. I guess it depends on how many are willing to be shaken out of their long positions in gold, and why they are holding it in the first place. But gold is oriented upwards right now, plain and simple.

Sep 28 01:33 AM

[bassmaster17:]

Cash for clunkers hangover + weak economic data=printing press hyperdrive...Go Ben Go!!! Buy gold

Oct 02 01:50 PM