Consider_this

No Gold Bubble

Your theory (taxi driver, hyperbolic curve) is not a necessary component to a bubble -- only that the bubbles have been allowed to grow and involve people on the streets. There are plenty of bubbles that have burst much earlier before growing to "down to mainstreet taxi driver" status.

You want to test for bubble in gold? Go to SA archives and look at any articles that bash gold. Look at the comments. Then go to any articles that praise gold, look at the comments. Put the "agree" and "disagree" comments appropriately and you'll get your indicator.

My non-scientific observation shows a HUGE number of people following gold -- that is your indicator. You want it to grow and grow by a significant percentage, and if it stagnates and shrinks, your gold investment is in trouble. A leaky bucket in following is a bad scenario to try to grow gold demand.

The number of people who go fanatic about gold is increasing; and their conviction is downright scary in the -- "I'm so sure! It can never happen other way". The last time few times saw this psychology:

1. Oil will go to 200, it can't go below 100!!!! There's no production capacity left! Peak oil!
2. Houses only go up! They aren't making anymore land! Rent and throw money away!
3. Nothing matters except eyeballs and clicks!! pets.com has huge amounts of clicks on first day!! You can't lose! Traditional companies are so passe!
4. Fiber optics mania. The orders for fiber cables have tapped out next 30 years of production!!! Nobody can buy fiber optics fast enough! You can't lose investing in fiber!!!

I say... if you're right, good for you. I choose not to play manias. At some point, you're going to have to buy medicines, food, oil and household goods. When that time comes around, you'll need to talk to "my" companies; whether we exchange in gold or not.

Gold: The Only Remaining Bubble?

The extreme bi-polar nature of the market; where you get massive deleveraging and deflation of the equities market and fear of a deflationary depression on one hand; and then a simultaneous fear for a hyperinflation tomorrow on the other hand due to massive govt issuance of debt. Can be explained without insulting either deflationists or inflationists.

I think they're both right.

Both deflationist and inflationist believe that some kind of collapse is imminent.

Deflationist believe that everything will collapse in price (and rightly cite all the drop in industrial, oil, retail, jobs, etc) and money in the streets become ever scarcer. This makes anyone who carry debt harder to service that debt; and who is the biggest debtholder in the world? US Govt. So govt will eventually default and we'll have an economic collapse.

Contrast this to an inflationist view:

Inflationist believe that the govt will not stop in it's bailout efforts, and will go so far as to flood the money supply by monetizing debt if need be. Thus, there'll be no technical default, but thru the hyperinflation that ensues, a inflationary default of the US debt.

A deflationist dream is to buy US Treasuries, collect what meager yields it has, and time the final cash out to just before the US Govt defaults, or the market recovers. His favorite flight to safety vehicle is Treasuries.

An inflationist dream is to buy Gold, and wait the imminent inflation of everything due to exploding money supply. Ideal cash out time is when the inflationary pressure is at the greatest. By then Treasuries, in contrast, will be paying pathetically low amount compared to what Gold would run up to.

Gold is an indicator of total global collapse. The ultimate short, if you will.

Similar to Treasuries, it is a flight to safety vehicle; but dissimilar to Treasuries it places no faith in the US Govt. Therefore, a flight to safety person has two choice: you can take the extreme step of parking your money in the treasuries today, as a safe haven (given today's pathetic interest rate); or an even more extreme step to park your money into gold, which is a further bet (compare to ultra liquid treasuries) on some kind of govt default and collapse.

Thus, I agree with the author that the dual climb of Treasuries and Gold need to be observed TOGETHER. As they both indicate the overall level of discomfort and fear in the market. If the dual assets continue to climb without easing, then it will be doomsday for the world, because money will dry up for any other business purpose.

However, if the fear should peak... And things start stabilizing to some extent, so that imminent doom doesn't seem a certainty anymore . That's the interesting angle of how these two will unwind.

What I know for sure is this, if we don't get doomsday, a lot of people who're betting on one one way or another, is going to get hurt.

Such a dysfunctional market.

12 Reasons to Short Gold

How about this as another thought exercise in gold:

I buy a unit gram of gold from you, $20. You then buy it from me, $40. I then buy it from you $80. Repeat Ad nauseam.

Keep trading this gold back and forth. Pretty soon, it'll be like:

I buy a unit from you $2000; you buy from me $4000; I buy from you $8000.

This draws two polar opposite conclusions from people who observe this:

1. Gold bugs:
Since money can be printed ad nauseam, this trade can go on forever! Soon I'll trade that unit for 1 trillion, u can trade it back to be for $2 trillion!

2. Everyone else:
How come this sequence of action sounds like a Ponzy Scheme or bubble? What if there's no more desire (aka demand) in the market to buy that last unit of gold? Then won't I be the stupid bag holder then?

Notice this:
In order for the price to keep going up, there has to be more and more desire, ability and demand to want to pay for that unit of gold at every increasing cash levels.

Today:
Desire == pretty high due to crisis, in fact, as pointed out by the author, you can say it's the highest it's ever been.

Ability == pretty badly being destroyed. Everyone's losing income and jobs. Soon we can't even afford necessities anymore, let alone gold. This is also cited above as the Indian Bride problem. When food and gold has to be prioritized, food wins always!

demand == Mixed bag; As jewelry or luxury bling, it's going down. As coinage, it's on backorder. (always baffles me: But doesn't that just highlight a backlog in the coining process as opposed to physical shortage? Are the coin issuers PURPOSELY not making enough coins despite physical jewelers not cutting as many bracelets, rings, etc?)

12 Reasons to Short Gold

What's the exit criteria for gold?

So I buy gold, you buy gold, everyone buys gold.

What can gold do? Nothing. It was 100 grams, it'll be 100 grams in a million years. It doesn't add to our food supply, our technology, or healthcare or improve anything in our lives.

Compare this to say:

I buy company X stock, you buy company X stock, everyone buy company X stock.

If company X is really well managed, it can issue more stock, take all that excess money and GROW. Make more profits in the future. While doing is, It could add to our food supply, our technology, or healthcare or improve something in our lives.

...

There's no need for an exit criteria in stocks, because the company could keep growing as long as there's demand to be sated, technology to be explored, lives to be improved. Live can go on indefinitely.

Gold, will be 100 grams until the universe goes pfft. So you *HAVE TO* define an exit criteria. Somewhere in time where you sell the grams to someone else, and then take out the profit to do something else (buy food, improve your health, upgrade your technology, etc).

How's gold not a bubble then?

Jeffrey Christian: Gold and Silver Could Spike

Absolute garbage piece of pump and dump.

It doesn't provide any good info on *WHY* commodities should raise, just a whole lot of momentum based reasons:

1. There's a lot of money, if it goes up, then it'll continue to raise!
2. There's a lot of people selling it, when it stops selling, it'll go up!
3. Everything has to happen (read: black swan event) even for gold to fall.

Don't get me wrong, I think gold has a place in investment; but articles like these do not help the actual discussion of fundamentals.

This is like a daytrader / pattern trader's pipe dream analysis.

Gold, Silver and Deflation

1. We did hide it. The house was ransacked. It's surprisingly easy to find things if you don't have to keep things tidy.

2. Your scenario: Gold becomes like Drugs/Contraband, that owning it can get you into trouble at airport security, metal detectors, random stops by cops. I'm not sure it's as easy to do that as you think, the risk is too great. It's like running through airports with an underwear full of cash -- if it's so risky to do that with cash, imagine doing that with METAL gold!

In any case, the debate with deflation or inflation ultimately depends on which of the two powerful forces wins in the end:

1. (Deflation) The 600 trillion CDS actually cases cascading-cross-defaul... Building default pressure on debts and demand slacking feeding into lower employment and deflationary spiral down.
2. (Hyperinflation) The Governments successfully inflate away debt, pumped up *main-street's* money supply or legislate inflation into economy.
(This is non-trivial and much harder than goldbugs realize. Japan had a housing bubble, and they weren't able to inflate their way out of it no matter how they tried. (A)Zero Inflation Rare Policy ends up pushing on a string as nobody is willing to borrow [ so the interest-policy never becomes currency ]. (B)Massive printing with an existing debt-base is also deflationary because we still have mortgages/debt that haven't fallen into trouble yet -- the moment you print too much money, interest rate will skyrocket, and now you have a new round of debt default/deflation even on people that were relative strong before -- resulting in even more powerful deflation force than before! )

These two are ultra-powerful forces colliding into each other right now. think Superman vs XMen. Which one wins will decide our fate. Our relative calm right now (compared to what will be coming) is a quirky byproduct of the fact that there's no winner yet.

Gold, Silver and Deflation

It is good to question Gold.

As Gold is an unproductive asset, almost exactly like houses, except that you can't (easily) make more of it (have to dig hard).

The trick to owning any non-productive asset is to forecast future demand for such asset, as that is the sole source of any "growth" in value.

In other words, if less people want it next month, then it's price *will* go down, since on it's own, it doesn't produce any money. If for whatever reason (Think rallies times), there are alternative investments that is growing fast and catching the popular attention, then gold will lag and even go down.

Right now, the main drive for gold going forward is fear. Fear of currency collapse, fear of stock market, fear of govt intervention/hyperinfl...

And yet, in the real economy, money base is quickly shrinking. We're staring into deflation, which is due to de leveraging and declining total debt/credit. Essentially, there is simply less money to go around.

This creates a "wedge" situation. If fear is constant, then the fact that money is in decline asserts that Gold *must* drop in price simply because there's less money to buy it. For gold to go up, the rate of increase in fear must exceed the rate of decline in money-availability.

In a sense, we're in a "bubble" of gold, but like any bubble: the Market can remain irrational much longer than you can remain solvent.

It is also true that bubble is in the eye of the beholder: (1) Are we building a gold bubble that will eventually burst (when fear subsides or currency-deflation becomes too extreme to support the gold prices), or (2) Are we actually unwinding from the great fiat currency bubble built over 60+ years and Gold is the actual indicator of true "value"?

Economics aside, there's also true issues with owning gold physically that anyone should deal with:

1. Theft is a non-trivial problem. My family have actually lost physical gold because we've been burglarized. The total loss ratio is 100%, which is much worse than simply owning, say, GE stocks. Crime is going to get worse if economy really worsens to a point that gold is useful.

2. Govt confiscation is outlawing is non-trivial too. Just look at governments in history during troubled times. Look at what happened during the Chinese Communist Cultural Revolution, where owning gold is illegal and it's confiscated. Part of current gold's value is it's liquidity because there's a market, if the market disappears as it becomes illegal to trade gold, then by virtue of being forced into black market, gold *will* lose it's liquidity and have to pay a premium to trade.

3. When gold is one day finally more useful than all the other fiat out there, we may very well be facing global world wars and social collapse. Which countries whose govt cannot pay it's police and military is able to maintain peace for long? In that scenario, owning gold may very well be like having a red target painted on you. You may need to swallow it or bury it to keep it.

Notice #1 - #3 fulfills the irony that "when you truly need something, you can't/don't/are unable to have/keep it anymore".

So, these are issues to contend with when you want to own gold.

My advice is own some/enough gold to buy a ticket out of where-ever you are, but don't bet your whole worth on it, because it will not save you during extended unrests.

An Open Letter to the Plunge Protection Team

Going back to the gold standard is a gold-bug's wet dream. It ain't going to happen.

There's a simple way that the current crisis of confidence with USA will resolve to USA's benefit.

It's a question of Relative Reputation and Image.

USA looks bad now because it has screwed up and is losing a lot of money -- relative to other countries who appear to not be screwing up as badly.

Is it really?

Or is it that the whole world is on a roller coaster, tipping over a "peak" and USA the first train? In that case, the first train appears to be crashing, and the rest seems to be moving up.

If this is so, and the decoupling theory is a bunch of crap, then this the crisis of confidence will quickly be resolved when USA finds a bottom and the other economies are still crashing.

An Open Letter to the Plunge Protection Team

Careful, We're looking at a potential Depression here... If it's really true, a Depression is a re-pricing of *ALL ASSETS*...

Price of every asset gets repriced down. A destructive cycle of lower demand driving lower prices driving lower jobs driving lower demand will start.

In that scenario, Gold is *NOT* the store of wealth you think it is. Nothing is immune, as whatever "money" someone will pay for a "thing" is going to be less, as the system simply has less money in it.

Good news is everything will be cheap at the end of this process -- bad news is everyone will be poor.