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Dr. Bill Conerly

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  • Is Gold a Bubble? [View article]
    Nice discussion, my friends.

    Vuke suggested a longer term perspective. Here's a data source for gold prices: I wanted to compare with consumer prices. The Bureau of Labor Stats has them back to 1913 at You can go back to 1800 at

    Here's a little calculation: In 1800, gold price was $19.39. If it had exactly matched inflation, it would have been $248.73 in 2010. Today's price looks really good, until you think about a 210 year compounding period. If you had bought gold back in 1800 (and lived through today), you would have earned an annual return equal to inflation plus 87 hundredths of one percent.

    I agree that gold is a long-term inflation hedge, but you should have a really long time horizon. A decade or two is not long enough to guarantee keeping up with inflation, as my post stated.

    The discussion of when do we know it's a bubble reminded me of the tech boom. I was very suspicious of tech stocks as early as 1995. Barron's magazine had a series of articles "Techs to Wrecks" poo-poohing the tech rally. The problem with being too early to call the bubble is that it can keep going a long time. At some point, early skeptics are tempted to throw in the towel and go in whole hog--just in time to get slaughtered.

    If you tell me the gold rally could continue for another year or two, I won't argue--maybe it will. But ten years of gains from this point on? I'm highly doubtful.

    Thanks for all the great comments.
    May 2, 2011. 07:54 PM | Likes Like |Link to Comment
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