Is Gold in a Bubble?

[Master Shake]

(originally posted in Ask EJ)

Came across this on the Kitco Gold Forum, where it was mostly ridiculed by the gold bugs there. Any comments?

http://i430.photobucket.com/albums/q...old-bubble.png (http://i430.photobucket.com/albums/q...old-bubble.png)

[bungee]

(originally posted in Ask EJ)

Came across this on the Kitco Gold Forum, where it was mostly ridiculed by the gold bugs there. Any comments?

http://i430.photobucket.com/albums/q...old-bubble.png (http://i430.photobucket.com/albums/q...old-bubble.png)

Working web address

http://i430.photobucket.com/albums/qq30/kernu11/gold/gold-bubble.png

[WDCRob]

Are there tax advantages to owning gold? Does the MSM prattle on 24/7 about how you should buy gold now or be priced out forever? Does everyone you know at a cocktail party talk about how much gold they own, and the price they bought it at? Does the President talk about the societal benefits of every citizen owning gold? Is it written into legistlative policy that gold ownership should be promoted? And etc.

No bubble.

[$#*]

(originally posted in Ask EJ)

Came across this on the Kitco Gold Forum, where it was mostly ridiculed by the gold bugs there. Any comments?

http://i430.photobucket.com/albums/q...old-bubble.png (http://i430.photobucket.com/albums/q...old-bubble.png)


I believe that is possible, in a way.
Remember that in fact we are dealing here with one large financial bubble, that creates shocks all through economy (such as the real estate bubble, the commodities bubble and now probably the T-bubble).

IMHO it is very possible to have a gold bubble, or to put it more correctly something that looks and feels like a gold bubble, but actually is just a transient anchoring moment of this financial bubble in the gold price.

The same with the debate about oil and housing. I believe we did not have a real/typical real estate and oil bubbles, but financial bubbles in mortgage and futures derivatives.

[metalman]

I believe that is possible, in a way.
Remember that in fact we are dealing here with one large financial bubble, that creates shocks all through economy (such as the real estate bubble, the commodities bubble and now probably the T-bubble).

IMHO it is very possible to have a gold bubble, or to put it more correctly something that looks and feels like a gold bubble, but actually is just a transient anchoring moment of this financial bubble in the gold price.

The same with the debate about oil and housing. I believe we did not have a real/typical real estate and oil bubbles, but financial bubbles in mortgage and futures derivatives.

'transient anchoring moment of this financial bubble in the gold price'

that directly contradicts numerous assertions you make in your thread... Do we have an oil bubble? (http://itulip.com/forums/showthread.php?p=39921#post39921)

have you changed your mind?

[Lukester]

Symbols -

JMHO but I think you have an excessively "financialized" assessment of both gold and commodities, especially oil. You see them as commoditized vehicles mirroring speculative forces, and certainly there are large components of that in both. But you don't wsh to credit to them anything more fundamental within the industrialised world than a commodity status, like soybeans, wheat, cotton, or tin. Both gold and oil are in a class apart from all the other commodities in the start of the 21st Century, and that should be immediately evident to all of us. Otherwise your intelligent and always witty comments are much appreciated.

Keep an eye on that Henry Groppe guy. He knows his business quite well after 50 years practicing it. Charley Maxwell too, as another octogenarian. And they are telling you the dynamics driving the petroleum market are about to spring some highly "anomalous" surprises. The take away of what they are pointing out is that to look at oil as a "typical financially driven commodity" is going to be inadequate in the near future. And as they insist that non financial factors are going to be a large part of future price action, you should have long since picked up on who these guys actually are, what their believability is, and have accomodated what they suggest into your assessments.

The ideal market observer does not ever impose his preconceptions upon the markets - but rather remains "soft and pliable". He incorporates new credible inputs promptly. Gold as a "transient anchoring mechanism" for finance bubbles is too "sophisticated". Here's just one joker in the deck complicating "bubble" designations of assets like gold, oil and a lot of other commodities too: many complications will arise from their supply soon, and accelerated also by surging global industrialisation. It's a "d'uh" observation of course, but to ignore it is even less smart. What will that do to the value of fiat monies? Also you make no accomodation for the obvious fact that this gold, as a "transient anchoring mechanism", has remained in central bank vaults in large amounts ever since gold was "demonetized". That's a large oversight.

You may see commodities glut everywhere now validating your thesis that all these assets are pure expressions of financial flows, but that risks being really short sighted in 2010-2020, which is effectively now. Subsequent leaps in the commodities can be all tangled up with the subsequent value of fiat money, as they can also affect it reciprocally.

You'd have to be a brilliant analyst to have their interrelationship all mapped out in 2010, as fiat money, gold's price, and dwindling oil and other raw materials can all interact in complex ways. To delineate the "bubble contours" of oil you'll have to delineate the onset of genuine oil constraints into global GDP soon enough, and claiming to have a full handle on THAT would be a quite ambitious assertion on your part. These guys, Groppe and Maxwell, are trying to tell you something that's opposite to "financialized", and you can "piggy back" on their combined 100 years of direct experience in the petroleum markets. What's my point? The "bubbles in most spiking assets" convictions are vulnerable, if you ask me (which you didn't).


I believe that is possible, in a way.
Remember that in fact we are dealing here with one large financial bubble, that creates shocks all through economy (such as the real estate bubble, the commodities bubble and now probably the T-bubble). IMHO it is very possible to have a gold bubble, or to put it more correctly something that looks and feels like a gold bubble, but actually is just a transient anchoring moment of this financial bubble in the gold price.

The same with the debate about oil and housing. I believe we did not have a real/typical real estate and oil bubbles, but financial bubbles in mortgage and futures derivatives.

[zoog]

(originally posted in Ask EJ)

Came across this on the Kitco Gold Forum, where it was mostly ridiculed by the gold bugs there. Any comments?

http://i430.photobucket.com/albums/q...old-bubble.png (http://i430.photobucket.com/albums/q...old-bubble.png)

Besides the fundamentals that others have talked about, I guess all I would add to the discussion is:

How do they know the scale of gold's rise thus far isn't more like this:

http://img156.imageshack.us/img156/1252/goldphasesfp9.jpg (http://imageshack.us)

[$#*]

'transient anchoring moment of this financial bubble in the gold price'

that directly contradicts numerous assertions you make in your thread... Do we have an oil bubble? (http://itulip.com/forums/showthread.php?p=39921#post39921)

have you changed your mind?

Nope, nothing changed and it doesn't contradict anything. It took me quite a few pages to demonstrate how the financial alchemy of ETN-like (aka synthetic derivatives based on futures) paper, that wwas used to play with the oil price. And if you read that thread carefully you will see I said the same thing there, quite a few times.

Why do you think at the end I had no argument when Fred told me that it wasn't a bubble because it doesn't fit the iTulip definition of a typical bubble? Because in a way he is right. The truth is we didn't have a typical case of asset price bubble in the case of oil.

Of course, if judging after the same rigorous standards one may say there was no housing bubble, but a mortgage derivatives bubble .. let's not go there, because we will be derailing another thread.:D

[tombat1913]

That's what I was going to do....If I didn't have to work for a living:p

[Lukester]

Right on Zoog.

Deceptively simple but substantive reply on your part, to a deceptively plausible but fundamentally flimsy question on the part of this article.

Kitco's editorials fall under the sway of Jon Nadler, whose track record of posting consistently bearish prognoses for the metals is so uninterrupted over the years, that it begs us to notice that Kitco's entire posture as a business is essentially to be short the PM's, because they act as a depository for metals, and regularly receive cash from clients for metals for which they purport to hold freshly acquired metal on a dollar for dollar basis.

Now let's consider why a metal vault would post articles over the years by their "lead analyst" which were so consistently bearish the metals? Here they are and their very business is the sale and storage of gold, and their "lead analyst" spends much of his time talking it down? Peculiar. One would imagine instead that like Paul Tustain at BullionVault and James Turk at GoldMoney, they'd post articles which remained for the most part fundamentally bullish the metals? At Kitco, "for the most part" Nadler's articles are bearish with a notable consistency.

If they did not own the full extent of their cash receipts in backing bullion, then their best interests would be served by the metals going DOWN as opposed to UP. A metals warehouse with less gold and silver than the cash received, is by very definition inclined to be short metals, as that reduces the extent of their exposure for any cash receipts not currently backed by gold.

It is not a small datum, that gold bullion dealers have one of the highest fail rates of any industry as their shorting of metals to hedge their ongoing business is notoriously fickle and risky. Meanwhile, Jon Nadler is the mouthpiece for this organization and a lot of people consider his articles "curiously consistent" for being perennially biased on the short side. :D IMO he's a shill.

[zoog]

That's what I was going to do....If I didn't have to work for a living:p

It was quick and dirty. But I did work into my lunchhour to make up for it.;):D


...Kitco's entire posture as a business is essentially to be short the PM's, because they act as a depository for metals, and regularly receive cash from clients for metals for which they purport to hold freshly acquired metal on a dollar for dollar basis...

[I've quoted just a little bit to get to the core of it]
That is an interesting idea I'd never thought of before, makes sense.

[ocelotl]

http://s.ngm.com/2009/01/table-of-contents/january-09-NGM-cover-2.jpg

seeing that last month, NatGeo put an article about gold as the front history (for the Mexican Version the frontpage photo was that of a "Centenario (http://en.wikipedia.org/wiki/Centenario)" coin) made me wonder.


The Real Price of Gold

By Brook Larmer
Photograph by Randy Olson
Like many of his Inca ancestors, Juan Apaza is possessed by gold. Descending into an icy tunnel 17,000 feet up in the Peruvian Andes, the 44-year-old miner stuffs a wad of coca leaves into his mouth to brace himself for the inevitable hunger and fatigue. For 30 days each month Apaza toils, without pay, deep inside this mine dug down under a glacier above the world's highest town, La Rinconada. For 30 days he faces the dangers that have killed many of his fellow miners—explosives, toxic gases, tunnel collapses—to extract the gold that the world demands. Apaza does all this, without pay, so that he can make it to today, the 31st day, when he and his fellow miners are given a single shift, four hours or maybe a little more, to haul out and keep as much rock as their weary shoulders can bear. Under the ancient lottery system that still prevails in the high Andes, known as the cachorreo, this is what passes for a paycheck: a sack of rocks that may contain a small fortune in gold or, far more often, very little at all.


Continue... (http://ngm.nationalgeographic.com/2009/01/gold/larmer-text)
Instead of being a mania article, it seemed more as a bear trap one, talking the demand down by showing exploit, misery and lack of hope... And the web equivalent, split into 13 parts doesn't help either. I also agree with zoog and Luke about being very early to call a bubble in gold, we would have to view it by the historical purchasing power of gold not in terms of decades, but in centuries, to acquire some perspective.

[unlucky]

Besides the fundamentals that others have talked about, I guess all I would add to the discussion is:

How do they know the scale of gold's rise thus far isn't more like this:

http://img156.imageshack.us/img156/1252/goldphasesfp9.jpg (http://imageshack.us)

Great chart work. But does it even make sense to talk about "enthusiasm" and "greed" in the case of gold? It seems to me that folks buy gold not out of enthusiasm but out of fear - either of financial collapse, or of inflation. We will never hear the MSM proclaim the fantastic benefits of investing in gold, because by definition if the gold price is rocketing the MSM will be talking about armageddon.

Gold, I think, is not like tulip bulbs or dotcom IPOs. It is not a useless empty vessel that can be parlayed into a bubble investment thesis. It has a very definite and widely understood use.

[zoog]

Great chart work. But does it even make sense to talk about "enthusiasm" and "greed" in the case of gold? It seems to me that folks buy gold not out of enthusiasm but out of fear - either of financial collapse, or of inflation. We will never hear the MSM proclaim the fantastic benefits of investing in gold, because by definition if the gold price is rocketing the MSM will be talking about armageddon.

Gold, I think, is not like tulip bulbs or dotcom IPOs. It is not a useless empty vessel that can be parlayed into a bubble investment thesis. It has a very definite and widely understood use.

This is an important point and goes along with what EJ was saying in No such thing as a Treasury bond bubble (http://www.itulip.com/forums/showthread.php?t=7863). That said, have you met any goldbugs? Some people are pretty enthusiastic about buying gold.:D

[FRED]

This is an important point and goes along with what EJ was saying in No such thing as a Treasury bond bubble (http://www.itulip.com/forums/showthread.php?t=7863). That said, have you met any goldbugs? Some people are pretty enthusiastic about buying gold.:D

Not a bubble -- yet. (http://itulip.com/forums/showthread.php?p=75445#poststop)

[Charles Mackay]

(originally posted in Ask EJ)

Came across this on the Kitco Gold Forum, where it was mostly ridiculed by the gold bugs there. Any comments?

http://i430.photobucket.com/albums/q...old-bubble.png (http://i430.photobucket.com/albums/q...old-bubble.png)

There is no such thing as a bubble in real money... only a bear market in things real money buys.

[metalman]

Nope, nothing changed and it doesn't contradict anything. It took me quite a few pages to demonstrate how the financial alchemy of ETN-like (aka synthetic derivatives based on futures) paper, that wwas used to play with the oil price. And if you read that thread carefully you will see I said the same thing there, quite a few times.

Why do you think at the end I had no argument when Fred told me that it wasn't a bubble because it doesn't fit the iTulip definition of a typical bubble? Because in a way he is right. The truth is we didn't have a typical case of asset price bubble in the case of oil.

Of course, if judging after the same rigorous standards one may say there was no housing bubble, but a mortgage derivatives bubble .. let's not go there, because we will be derailing another thread.:D

so you didn't post a link to a 60 min segment on oil and say that marked the end of the oil bubble, the title of the thread you started.

[Prazak]

Right on Zoog.

Deceptively simple but substantive reply on your part, to a deceptively plausible but fundamentally flimsy question on the part of this article.

Kitco's editorials fall under the sway of Jon Nadler, whose track record of posting consistently bearish prognoses for the metals is so uninterrupted over the years, that it begs us to notice that Kitco's entire posture as a business is essentially to be short the PM's, because they act as a depository for metals, and regularly receive cash from clients for metals for which they purport to hold freshly acquired metal on a dollar for dollar basis.

Now let's consider why a metal vault would post articles over the years by their "lead analyst" which were so consistently bearish the metals? Here they are and their very business is the sale and storage of gold, and their "lead analyst" spends much of his time talking it down? Peculiar. One would imagine instead that like Paul Tustain at BullionVault and James Turk at GoldMoney, they'd post articles which remained for the most part fundamentally bullish the metals? At Kitco, "for the most part" Nadler's articles are bearish with a notable consistency.

If they did not own the full extent of their cash receipts in backing bullion, then their best interests would be served by the metals going DOWN as opposed to UP. A metals warehouse with less gold and silver than the cash received, is by very definition inclined to be short metals, as that reduces the extent of their exposure for any cash receipts not currently backed by gold.

It is not a small datum, that gold bullion dealers have one of the highest fail rates of any industry as their shorting of metals to hedge their ongoing business is notoriously fickle and risky. Meanwhile, Jon Nadler is the mouthpiece for this organization and a lot of people consider his articles "curiously consistent" for being perennially biased on the short side. :D IMO he's a shill.

Here here. I read Nadler's "commentaries" daily. Not only is he consistently bearish on gold, but he seems to delight in mocking the bulls, and particularly those goldbugs, like the folks at GATA, who claim that the market is being manipulated toward official ends. I often come away thinking "me thinks Nadler doest protest too much".

[Lukester]

I occasionally daydream of throwing some rotten eggs at that guy's immaculately pressed wanker-banker suit. ... I know that's very "bad form" on my part, but this is the deep unconscious speaking to me.


Here here. I read Nadler's "commentaries" daily. Not only is he consistently bearish on gold, but he seems to delight in mocking the bulls, and particularly those goldbugs, like the folks at GATA, who claim that the market is being manipulated toward official ends. I often come away thinking "me thinks Nadler doest protest too much".

[Prazak]

I occasionally daydream of throwing some rotten eggs at that guy's immaculately pressed wanker-banker suit. ... I know that's very "bad form" on my part, but this is the deep unconscious speaking to me.

Great visual, that. Wouldn't be surprised to see a clip of something along those lines playing at some Tate Modern or MoMA retrospective on this era. In fact, I might just have to go set up a firing squad of uniformed men bearing raw eggs facing a hapless, blind-folded banker; film it; throw it up on You Tube; and call myself an artist.

And I might well steal the phrase "wanker-banker suit" for the title. :)