The gold bubble

[DavidS]

With gold at record prices, nearing $1200/ounce, one must be careful and realize that sometime, probably in the first quarter of next year, the Fed will raise interest rates and pop the gold bubble as gold will most likely fall to under $900/ounce. Remember, gold is a commodity. Like all other other commodities, whenever it hits a meteoric rise, it will always, ALWAYS have a meteoric drop within six months time. Just remember the oil bubble of 2008 as the perfect example of that.

I hope everyone here is careful with their gold purchases.

 

[Paulie]

I don't disagree with you Dave, for once.

Gold will eventually come back down, but it's long term forecast is bullish.

The Fed needs to practically be PERFECT about exiting all these new facilities, or else we're looking at almost inevitable price inflation down the road.

That's obviously bullish for gold.

 

[Toro]

Though I am sympathetic with the idea that at some point, there will be a correction in the price of gold, thus far, there is no evidence of it. Instead, the ascent in gold thus far has actually been more measured than the rise from September 2007 to the prior peak of $1032 in March 2008 when gold rose 50% in six months. That has not happened yet.

I own a lot of gold, and am expecting it to hit somewhere between $1300 and $1500 by March (though I might change my mind and sell everything tomorrow). We'll see from there.

Some bullish commentary on gold from some really, really smart investors.

First, Marc Faber
Gold Price Won’t Drop Below $1,000 an Ounce Again, Faber Says - Bloomberg.com

John Paulson has been buying a lot of gold.
Felix Salmon » Blog Archive » Gold-denominated hedge funds | Blogs |

Paul Tudor Jones tells you why gold is going a lot higher.
Seeing Next Boom, Tudor Goes for Gold - DealBook Blog - NYTimes.com

And finally, Jim Rogers predicts gold at $2000 an ounce.
http://www.commodityonline.com/news/Gold-heading-to-$2000-as-predicted-by-Jim-Rogers-22774-3-1.html

The inflation-adjusted high for gold is somewhere between $1600 and $2400 an ounce, depending on which metric used. Gold is one of the few commodities that did not hit its inflation-adjusted high when commodities peaked in 2008. It is also the only asset I know of that is currently trading at its all-time high, thus exhibiting relative strength and likely to go higher.

I do agree that things are getting a little airy for people who don't know what they are doing, but we have not even begun to approach a blow-off top yet.

 

[Paulie]

Rogers is the Buffett of commodities. Certainly not one to bet against.

That's good due diligence on the gold though Toro, I can't wait to see some of the others in here come in and say Gold's way overinflated because TV commercials have been pimping it

Some people HATE gold, it's weird. Why wouldn't you take gold into consideration with this particular monetary policy we've gone with?

Makes no sense from an investor standpoint.

 

[alan1]

Rogers is the Buffett of commodities. Certainly not one to bet against.

That's good due diligence on the gold though Toro, I can't wait to see some of the others in here come in and say Gold's way overinflated because TV commercials have been pimping it

Some people HATE gold, it's weird. Why wouldn't you take gold into consideration with this particular monetary policy we've gone with?

Makes no sense from an investor standpoint.

I only invest in pork bellies, because you can't eat gold.

 

[Paulie]

Rogers is the Buffett of commodities. Certainly not one to bet against.

That's good due diligence on the gold though Toro, I can't wait to see some of the others in here come in and say Gold's way overinflated because TV commercials have been pimping it

Some people HATE gold, it's weird. Why wouldn't you take gold into consideration with this particular monetary policy we've gone with?

Makes no sense from an investor standpoint.

I only invest in pork bellies, because you can't eat gold.

I haven't seen a pork belly commercial though so obviously no one's buying any.

 

[Toro]

Rogers is the Buffett of commodities. Certainly not one to bet against.

That's good due diligence on the gold though Toro, I can't wait to see some of the others in here come in and say Gold's way overinflated because TV commercials have been pimping it

Some people HATE gold, it's weird. Why wouldn't you take gold into consideration with this particular monetary policy we've gone with?

Makes no sense from an investor standpoint.

I often have to preface my bullishness for gold with "I'm not a gold bug." There are a lot of weird people out there who are gold bugs, but that doesn't mean they are always wrong.

I started making the bullish case for gold back in 2002. Back then, when I made the case for gold, people would look at me blankly. I had one guy laugh at me. I had another call me an "old man," even though I was still thirtysomething.

I have been in and out of gold ever since. I was told I was once the largest shareholder of gold stocks in the Southeast through my fund, though I have no idea if that is true or not. And even though I would talk to the gold analysts at the big investment houses, I sometimes could not get them to come see me because no one else wanted to meet with them, and it was uneconomical for the analyst to fly from NY to Florida for one visit.

I can tell you that most investment managers still do NOT own gold stocks. Very few do.

I first started buying gold in the early part of 2002 when I read an article about how there had been no new production come on line in five years because the price of gold was so low. I love stories about lack of new supply, so a few months later, I went up to NY to attend Morgan Stanley's basic materials conference, which was held on the top floor of their headquarters on Broadway and 45th. The first day of the four day conference was gold companies, with the junior golds in the morning. I counted 13 people there, including myself. I was stunned. Nobody was paying any attention. I had sandwiches in box lunches with some of the CEOs, and we talked about how mine supply was falling, and how the government was creating conditions that was bullish for gold. So I bought a basket of the juniors. On the forth day, it was about paper and forest companies. There were hundreds of investors there, with the room packed and investors in the overflow room.

I have only made three investment bets on politics. The first was on the Iraq War, when I was buying high beta stocks just before the US invaded Iraq. I was betting we were going to win, as my intelligence was telling me we were going to do so easily.

The second was when I doubled my stake in gold a day after the 2002 Congressional elections. The Republicans won everything and told you exactly what they were going to do - they were going to cut taxes but not do anything about spending. Gold was around $330, and, along with Greenspan keeping rates so low and supply so restricted, gold was going to go much higher.

I sold all my personal gold holdings a day after Bear Stearns was taken over by JP Morgan, which was when gold topped out. I had just gotten back from Europe the night before, and I turned to my father that morning and watched something move hard - I can't remember - and told him I had to sell all my gold holdings now, because it had hit its peak.

I came back into gold in late August, early September, buying a large position in gold calls with gold around $950-$975, as it was clear it was under accumulation. With the Fed and the Obama administration doing everything it can to blast the dollar, it was clear to me that gold is/was going a lot higher. That is the third bet I have ever made on politics.

I don't think the Fed is going to raise rates in the Spring. I think they are going to do so once it becomes clear the economy is on sound footing, and that won't happen until employment really starts to pick up, which it is unlikely to do anytime soon.

At some point, the dollar will bottom against the fiat currencies, and there may be a sell-off in gold. However, gold is not an anti-dollar play. The ultimate denouement is as an anti-fiat currency play, where it rises in all currencies. It rose in all currencies in 07-08, and it is beginning to break out in other currencies now.

In its current trajectory, gold will hit $1300 in March. If it takes off like it did in 07-08, it will hit $1500. Gold's strong season is September through March. March is when my calls expire.

But clear warning, these things can change overnight. Gold could easily fall $100 if something turns against it. If you are buying here, I think you really have to know what you are doing.

 

[johnrocks]

Even if that happened, gold would still reflect a true value of prices, your comparing it against the dollar, look at how much it will buy at $1200 an oz. and then at $900 an oz.

 

[eagleseven]

Perhaps rather than price gold in dollars, we should price gold in loaves of bread?

How many loaves of bread can you buy with one ounce of gold? I don't believe, in a given economy, that the number of loaves will dramatically vary, regardless of the country's monetary policy. You won't see more than a tenfold change in value in either direction over any short-term period of time.

This is in contrast with fiat currency...few people go into gold looking to turn a profit.

 

[Neubarth]

Perhaps rather than price gold in dollars, we should price gold in loaves of bread?

How many loaves of bread can you buy with one ounce of gold? I don't believe, in a given economy, that the number of loaves will dramatically vary, regardless of the country's monetary policy. You won't see more than a tenfold change in value in either direction over any short-term period of time.

This is in contrast with fiat currency...few people go into gold looking to turn a profit.

There isn't enough gold to serve as a currency, much less to serve as a backup to the current currency. How could you have "Pay to the bearer on demand" notes when there could never be enough gold to meet the demand?

 

[Andrew2382]

I spoke to my broker Billy Ray Valentine and I am investing all my money to corner the frozen concentrated orange juice market.

 

[alan1]

I spoke to my broker Billy Ray Valentine and I am investing all my money to corner the frozen concentrated orange juice market.

I'll trade some pork bellies for orange juice when I get thirsty.
We'll let the gold owners eat gold.

 

[Zander]

I think gold is overvalued. Here is why: the dollar has lost 96% of it's purchasing power since 1913 according to the CPI . To match that loss gold should be up 25x it's pre 1934 fixed value of $20.67. It is not up 25X, it is up over 55x!! On this basis gold is around 50% overvalued. If you doubt the CPI or believe that using it biases the dollar and assume that dollar has lost 98% of it's purchasing power since 1913, then it just about fairly valued. AFAIC, A buyer of gold today has to be REALLY convinced that inflation is going to take off in order to justify buying at today's prices.

 

[Toro]

I think gold is overvalued. Here is why: the dollar has lost 96% of it's purchasing power since 1913 according to the CPI . To match that loss gold should be up 25x it's pre 1934 fixed value of $20.67. It is not up 25X, it is up over 55x!! On this basis gold is around 50% overvalued. If you doubt the CPI or believe that using it biases the dollar and assume that dollar has lost 98% of it's purchasing power since 1913, then it just about fairly valued. AFAIC, A buyer of gold today has to be REALLY convinced that inflation is going to take off in order to justify buying at today's prices.

Read Tudor's letter on why it is undervalued.

Seeing Next Boom, Tudor Goes for Gold - DealBook Blog - NYTimes.com

 

[Polk]

I don't disagree with you Dave, for once.

Gold will eventually come back down, but it's long term forecast is bullish.

The Fed needs to practically be PERFECT about exiting all these new facilities, or else we're looking at almost inevitable price inflation down the road.

That's obviously bullish for gold.

I would agree to that.

 

[Neubarth]

Gold is only worth what people are willing to pay for it. It has been hyped before to limited success and then it falls in value. As I tell people, it is a pretty yellow metal and nothing more.

If the demand for Gold goes up, it should increase in price. If people get tired of the Gold Hype, it will go back down in attractive value and then it will decrease in price. Such is reality.

 

[Paulie]

Gold is only worth what people are willing to pay for it. It has been hyped before to limited success and then it falls in value. As I tell people, it is a pretty yellow metal and nothing more.

If the demand for Gold goes up, it should increase in price. If people get tired of the Gold Hype, it will go back down in attractive value and then it will decrease in price. Such is reality.

It's psychological more than anything else.

The whole 'you can't eat it' argument is fallacious, because gold has been psychologically accepted as a store of value for cash during inflationary periods since the beginning of MONEY.

There's no reason to think it would be anything different this time around.

The only way gold loses out completely and becomes worthless is if the entire world collapses into financial catastrophe and no one has any food to eat ANYWHERE.

Otherwise, gold will always be an inflationary safe haven. There's really no point in even arguing against more than a thousand years of history.

 

[Zander]

I think gold is overvalued. Here is why: the dollar has lost 96% of it's purchasing power since 1913 according to the CPI . To match that loss gold should be up 25x it's pre 1934 fixed value of $20.67. It is not up 25X, it is up over 55x!! On this basis gold is around 50% overvalued. If you doubt the CPI or believe that using it biases the dollar and assume that dollar has lost 98% of it's purchasing power since 1913, then it just about fairly valued. AFAIC, A buyer of gold today has to be REALLY convinced that inflation is going to take off in order to justify buying at today's prices.

Read Tudor's letter on why it is undervalued.

Seeing Next Boom, Tudor Goes for Gold - DealBook Blog - NYTimes.com

He's just another guy with a rather long winded opinion. Buy gold if you like it. Personally, I think it is overvalued, he thinks it's not. That is why we have a market.

 

[Toro]

I think gold is overvalued. Here is why: the dollar has lost 96% of it's purchasing power since 1913 according to the CPI . To match that loss gold should be up 25x it's pre 1934 fixed value of $20.67. It is not up 25X, it is up over 55x!! On this basis gold is around 50% overvalued. If you doubt the CPI or believe that using it biases the dollar and assume that dollar has lost 98% of it's purchasing power since 1913, then it just about fairly valued. AFAIC, A buyer of gold today has to be REALLY convinced that inflation is going to take off in order to justify buying at today's prices.

Read Tudor's letter on why it is undervalued.

Seeing Next Boom, Tudor Goes for Gold - DealBook Blog - NYTimes.com

He's just another guy with a rather long winded opinion. Buy gold if you like it. Personally, I think it is overvalued, he thinks it's not. That is why we have a market.

Paul Tudor Jones III is not "just another guy." He is one of the greatest commodity traders and hedge fund managers of all time. He might be wrong, but he is one of the best investors ever.

And whether or not it is overvalued is irrelevant in the short and intermediate term. Valuation only matters over the long term. It means nothing over the short term.

 

[Zander]

Read Tudor's letter on why it is undervalued.

Seeing Next Boom, Tudor Goes for Gold - DealBook Blog - NYTimes.com

He's just another guy with a rather long winded opinion. Buy gold if you like it. Personally, I think it is overvalued, he thinks it's not. That is why we have a market.

Paul Tudor Jones III is not "just another guy." He is one of the greatest commodity traders and hedge fund managers of all time. He might be wrong, but he is one of the best investors ever.

And whether or not it is overvalued is irrelevant in the short and intermediate term. Valuation only matters over the long term. It means nothing over the short term.

He's just another blowhard with an opinion as far as I am concerned. Buy gold if you want to, it's a free country.