A Gold Bubble?

[Mayabird]

I don't have any articles for this. This was conjecture on my part today when I heard something about the price of gold and *certain persons* advocating yet more buying of it. Also note that I know next to nothing about economics except that there is a lot of bullshit mixed up in it.

However, the price of gold is shooting up. A lot. Very fast. People are buying it up. Sure, the price will be greater now with a crappy economy than it would be in an (apparently and please let's not quibble about that right now) good economy. That being said, how much of that higher price is the 'actual' value and where it 'should' be based on economic conditions and how much is just people buying up gold because they think the price will keep going up? How much of that is just speculation?

Is this a gold bubble, and if so, when will it pop?

[Mr Bean]

There has been a gold bubble since 2008 and it's not stopped going up since then. Yes there is a gold bubble, yes it will be massive and yes it will hit the gullible as most bubbles do.

[LadyTevar]

And when it pops there will be much wailing and crying.

[J]

There has been a gold bubble since 2008 and it's not stopped going up since then. Yes there is a gold bubble, yes it will be massive and yes it will hit the gullible as most bubbles do.

Earlier, actually, since about 2005, though it didn't go crazy till the banks started falling apart in 2008.

The short version; in the past 30-40 years gold is a geopolitical and inflation hedge, that is if war, major instabilities, high inflation or something of that sort is expected the price of gold goes up sharply. It's also a "safe haven" investment to some extent, when people are afraid and don't know where to put their money they start hoarding gold. On top of that we have the banks & other financials carrying out gold speculation using free government money. Then add the shills on CNBC and other media telling everyone to buy gold before they're priced out forever and you have all the ingredients of a bubble.

How long does it last? It goes on until the bailouts, quantitative easing and other funny money games stop working. That depends on what happens in Europe with their sovereign bailouts of various nations, there's over a trillion Euros of debt which needs to be rolled over this year in addition to another trillion of banking debts which also needs to be rolled. It could get messy.

[LaCroix]

It's the classic money extraction scheme.

Bank buys cheap gold in bulk.
Gold rises in price.
Bank tells people to buy gold.
People buy gold, Bank sells it.
People now have overpriced gold, banks now do have their money.
Bank waits for prices to calm down, buy the cheaper gold back in bulk from the people they originally have sold it to.
Prices rise again...

That's why I'd never start buying a commodity when banks 'advise' me to buy it.

[AMT]

Or, you just get out before the bubble bursts, and invest enough you can afford to lose, like I do when I buy into commodities. It's not a bad investment as long as you aren't stupid and think it'll keep going up forever. My personal strategy is to purchase enough of a commodity with any extra income, and keep it for a specific period, no later. Do I potentially lose out on more profit? Yes, but better that then being stuck with it after the bubble bursts.

[Broomstick]

We accumulated gold over a number of years (partly due to hillybilly relatives who don't trust banks) - and this was real gold, as in something tangible you could hold in your hand, not a piece of paper or electronic purchase of it. A few months ago we cashed it in (wer'e using it to try to start a business to get out of our current hole), so in our case we profited from the bubble and speculation. Like AMT, we might not have extracted absolute maximum value from what we had, but it served our needs and purposes.

Of course, with that method of holding gold you have to be wary when you go to sell it - some places will only give you a tenth of the real value of your gold, which is, of course, a rip-off. (I'm looking at you, TV ads). The dealer we finally sold to gave us a fair price, after which he mentioned himself his concerns about the price of gold suddenly imploding.

I see people now buying gold as a "sure thing" and safe haven. Truth is, speculation can cause a boom->bust cycle in anything. The gold in my family wasn't purchased in a buying frenzy, it was slowly accumulated in good times as a hedge against bad times (and because the in-laws have bad teeth and refuse to throw away or bury dental gold) which historically is how people acquired and kept gold. Now, though - it's a buying frenzy, which says "speculation" to me. It destroys safe haven investments. Seems to that lately the world is burning through the "safe haven investments" as fast as it's burning through the petroleum.

[Molyneux]

If I'm not mistaken, wouldn't even conservative investing in a bubble like this help to fuel the inflation of that bubble?

[Broomstick]

Depends on the extent of your investing, I'd say.

Right now I wouldn't get into gold - the price is already too high. But that's my personal opinion, I don't even pretend to be any sort of investment expert.

[Spoonist]

Did you read about the ATM machine that handed out gold? So yes there is definately a bubble feeling depending on the uncertainty of local currencies/economy. However gold has been more and more useful as well. So a lot of gold is taken out of the system to be inserted into fine machinery, which also adds to the price.

If I'm not mistaken, wouldn't even conservative investing in a bubble like this help to fuel the inflation of that bubble?

Of course. That is one school of economy. Jump on a trend and bail before everyone else. The skill is in the timing. The bubble usually though don't get big enough until joe average jumps abord.
On the other hand if you are in a position to create a trend you can do the same but a bit earlier. Like all economy reporters hyping a stock/commodity which they have an interest in.

[Simon_Jester]

Did you read about the ATM machine that handed out gold?

Is it just me, or is that thing asking to be stolen? If it actually contains enough gold that people can use it (no one's going to go to the machine to buy 1/100th of an ounce of gold)... I mean, it's a big box full of untraceable high-value stuff, and you can't even use the serial numbers on the bills the way you could with a normal ATM if someone rips it out of the wall with a pickup truck or something.

[Beowulf]

Did you read about the ATM machine that handed out gold?

Is it just me, or is that thing asking to be stolen? If it actually contains enough gold that people can use it (no one's going to go to the machine to buy 1/100th of an ounce of gold)... I mean, it's a big box full of untraceable high-value stuff, and you can't even use the serial numbers on the bills the way you could with a normal ATM if someone rips it out of the wall with a pickup truck or something.

Owners said the machine, which will hold around $150,000 in cash and gold, will be flanked by an armed bodyguard for now. Several live security cameras are fixed inside and outside the machine.

[AMT]

If I'm not mistaken, wouldn't even conservative investing in a bubble like this help to fuel the inflation of that bubble?

Well yes, but the bubble will burst anyway since we seem to live in an unregulated economy in general. I'd rather take the chance to come out ahead if possible.

[bobalot]

Goldbugs have been predicting the end of "fiat" currencies for decades. Every time there is a recession, goldbug/libertarian chatter about this increases, thus feeding the gold buying frenzy.

[aerius]

Goldbugs have been predicting the end of "fiat" currencies for decades. Every time there is a recession, goldbug/libertarian chatter about this increases, thus feeding the gold buying frenzy.

The fun part is it's the goldbugs who will get creamed hard if the shit does hit the fan. If they do get the fiat currency collapse they want, the government will come after their gold and confiscate it, then make trading or paying for things in gold illegal. Gold is now black market and no one will accept it at anywhere near its "proper" value, what was a $1000 gold coin is now worth a fraction of that.

[Simon_Jester]

Did you read about the ATM machine that handed out gold?

Is it just me, or is that thing asking to be stolen? If it actually contains enough gold that people can use it (no one's going to go to the machine to buy 1/100th of an ounce of gold)... I mean, it's a big box full of untraceable high-value stuff, and you can't even use the serial numbers on the bills the way you could with a normal ATM if someone rips it out of the wall with a pickup truck or something.

Owners said the machine, which will hold around $150,000 in cash and gold, will be flanked by an armed bodyguard for now. Several live security cameras are fixed inside and outside the machine.

It's a good idea, but the sheer value of the machine makes it such a tempting target... I don't know.

Hopefully the guard and the cameras will protect the machine, but I would not be at all surprised to read about someone managing to pull off a robbery on the machine.

[Uraniun235]

Goldbugs have been predicting the end of "fiat" currencies for decades. Every time there is a recession, goldbug/libertarian chatter about this increases, thus feeding the gold buying frenzy.

The fun part is it's the goldbugs who will get creamed hard if the shit does hit the fan. If they do get the fiat currency collapse they want, the government will come after their gold and confiscate it, then make trading or paying for things in gold illegal. Gold is now black market and no one will accept it at anywhere near its "proper" value, what was a $1000 gold coin is now worth a fraction of that.

Aren't those the kind of people who expect the government to collapse along with fiat currency?

It still strikes me as dumb either way, even if the government didn't ban gold. How much is gold going to be worth in a post-collapse environment? How much wheat are you going to trade for a piece of gold? You don't have a god damn idea and neither will anyone else at first. Spend your money on supplies, durable equipment, and some print nudity. When the surrounding jackasses get a new money system going you can trade some of your extra shit for douchemarks and buy a horse or something.

[bobalot]

Goldbugs have been predicting the end of "fiat" currencies for decades. Every time there is a recession, goldbug/libertarian chatter about this increases, thus feeding the gold buying frenzy.

The fun part is it's the goldbugs who will get creamed hard if the shit does hit the fan. If they do get the fiat currency collapse they want, the government will come after their gold and confiscate it, then make trading or paying for things in gold illegal. Gold is now black market and no one will accept it at anywhere near its "proper" value, what was a $1000 gold coin is now worth a fraction of that.

Aren't those the kind of people who expect the government to collapse along with fiat currency?

It still strikes me as dumb either way, even if the government didn't ban gold. How much is gold going to be worth in a post-collapse environment? How much wheat are you going to trade for a piece of gold? You don't have a god damn idea and neither will anyone else at first. Spend your money on supplies, durable equipment, and some print nudity. When the surrounding jackasses get a new money system going you can trade some of your extra shit for douchemarks and buy a horse or something.

These are generally Libertarians we are talking about here. They are not exactly known for thinking outside their particular set of axioms.

[General Zod]

It's a good idea, but the sheer value of the machine makes it such a tempting target... I don't know.

Hopefully the guard and the cameras will protect the machine, but I would not be at all surprised to read about someone managing to pull off a robbery on the machine.

Gold is pretty heavy. Even if some idiot tried knocking it over they'd need a lot of manpower or extra equipment to haul it off or they aren't going very far. It's just not as easy as stuffing some bills into a sack and jumping into a getaway car.

[Artemas]

an ounce of gold is worth $1000 right now. If it were all gold (it's not, some is cash) then that would only be 150 ounces. Thats, like 5 kilos or something. A briefcase full of cash weighs more.

[The Duchess of Zeon]

I expect the actual price of gold should be around $500.00 - $575.00 an ounce, so gold is overpriced by up to or more than 100%.

[Artemas]

Why do you think that the actual price of gold should be between five and six hundred dollars?

For the inter-recession period between the early 80s and 2006 or so the median price was $300-$400.

[The Duchess of Zeon]

Why do you think that the actual price of gold should be between five and six hundred dollars?

For the inter-recession period between the early 80s and 2006 or so the median price was $300-$400.

The US dollar has been subject to heavy inflationary pressures, remember? And we will expect some natural rise in gold as a consequence of a recession as well, it should just be much smaller than this, a fraction of the overall value.

[Bernkastel]

I had heard mutterings on the interweb of such a bubble. It's nice to get confirmation on that, though it is not a matter that concerns me directly.

[Broomstick]

I expect the actual price of gold should be around $500.00 - $575.00 an ounce, so gold is overpriced by up to or more than 100%.

Which did not bother me a bit when I cashed in MY gold (1.2 troy ounces) at current prices.

But we bought low, in good times, and sold high - anyone buying into gold now will not get nearly the return we did. Of course, it required waiting about 15-20 years for the correct alignment of need and price, but then we're also a lot more patient than the average idiot.