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It is true that in a bubble everyone is telling you to buy. But I don't think we're in a bubble for the gold price for a couple reasons. The first is that most

It is true that in a bubble everyone is telling you to buy. But I don't think we're in a bubble for the gold price for a couple reasons. The first is that most people with an unsophisticated financial perspective (eg: hair dressers) are not aware of gold (in the countries I've visited.) The slightly sophisticated (Eg: people who invest in mutual funds) have been claiming there was a gold bubble going all the way back to when it was only $400 an ounce. But the other reason is we haven't seen gold take leave of the fundamentals. The financial crisis that has been unfolding since 2008 has revealed that the only response governments seem willing to take is ever more monetary inflation. The more money out there, the higher the price of gold. Secondly, most gold trading is at the level of very sophisticated people, not the average joe. When average joes start piling in and blowing up the price, then gold may take leave of its fundamentals and we'll have a bubble. The thing is, in bubbles, supply rushes in to meet demand-- but you cant' scale up supply of gold like you can dotcoms or houses. Environemntal regulations and kleptocratic governments keep new mine production opportunities limited. Finally, mining companies-- which should be the darlings of the gold bubble if there is one-- are trading sympathetic with the rest of the stock market, not contrary to it. If we were in a gold bubble, then good news for gold (eg: bad financial news) would cause those prices to go up-- but they don't they go down now. This indicates that they are not seen as an alternative, but as being subject to the bad news the same way General Electric, et. al. are. We won't enter a bubble phase until that has changed. When people start seeing gold as a safer asset (or as a bull market "you just gotta get into!") then we'll have entered a bubble. At that point, when there's bad news for General Electric, you'll see a bump in the price of GoldCorp. We saw this in the dotcom bubble-- a big IPO for a tech company would cause a decline in General Electric or Gold for that matter. All of these are subjective observations, so neither of us can really prove the other wrong of course. I found it interesting is that we use the same signal to detect a bubble-- the hair dressers and MLM schemes. I'm impressed to see how much more popular gold is outside the USA than it is inside the USA. I take that as a sign that it is heading towards a bull market. However, if you're right and I'm wrong, I will be very severely punished by the markets. I'm not too worried, though. I got punished by the dotcoms. I played the housing bubble successfully going up and going down and got out a bit early, but am happy with the result. I remember being told I was crazy on forums because I said there was a bubble in housing. So, you're not crazy, I just think you're too early.

JanezStupar 15y ago
This is quite interesting to hear. So in the US it hasn't taken hold yet? Here in Europe the buzz is starting, the MLM aspect has been less than a year old. So I have caught this in the early stage? Can someone else from the US confirm or deny econgeeker's claim? This is the specific scheme I was invited to: http://www.securitas-aurum.com/ http://www.securitas-aurum.com/ But its hard for me to believe that Slovenia (where I am from) is ahead of US on this one. We usually lag a year or two in such phenomena. So I can explain it in 2 ways -> You are either a nugget of gold, if your statements are legit, then there is still money to be made from this one. The other explanation is that you are one of the team doing the pumping. What does the hive mind have to say?
- gyardley 15y ago
  Well, I'm not the hive mind, but I've seen gold marketed very aggressively in America -- to conservatives. My National Review subscription has been full of gold ads for some time. Same with conservative talk radio. This makes sense to me -- conservatives in America seem far more alarmed about the size of the debt and its impact on the dollar than liberals. My guess is the level of gold hype in America varies dramatically from region to region.
  - JanezStupar 15y ago
    You are not hive mind, but you are a voice. Thank you for your response.
- econgeeker 15y ago
  Certainly there is more awareness of gold in the USA than there was in the 1990s. On political radio- conservative or liberal- you hear "buy gold!" advertising. I've been hearing those ads going back, at least, to 2005! They were there in between the mortgage refinance ads back in the day. On TV you see people pitching "investment grade" and "rare" gold coins. They think numismatics are the way to go, and they are charging too much money. I've seen that since the 1990s. I bet the amounts of both of these kinds of marketing of gold is up significantly in the last 10 years. All around Europe, eastern and western europe, I've seen lots of signs at money changers and some banks who are happy to sell you gold. These signs are generally posters in the windows, not metal signs or painted, so this gives me the impression this is a new phenomena. I was very happy to see these signs, given my experience in the USA. In the USA, if you want to buy gold, you can spend way too much to buy it on the TV. Or you can go to one of the few local retailers who sell bullion - but generally their primary business is either selling collectable coins or selling jewelry. The bullion is a side business. Unless things have changed in the last year, it is a pain in the ass to buy gold in the USA. There may be one or two of these bullion dealers in a larger sized town. You can't just go to the money changer or the bank. I gave you several reasons for my perspective. Consider them critically. But if you're looking for someone to agree with you, and tell you I'm a dirty rotten capitalist who is full of it, you'll have no trouble finding that. I would strongly recommend that you not rely on my opinion, or that of the "hive mind" or anyone else to make any sort of financial decisions. You have to use your own judgement and you have to learn what you can about the subject. This is why I said, "If I'm wrong, I'll be punished"-- the market will take one action or the other, long after this conversation is finished. I would suggest reading economics books such as "Economics in one lesson" by Henry Hazlitt Free here: http://www.hacer.org/pdf/Hazlitt00.pdf http://www.hacer.org/pdf/Hazlitt00.pdf By all means, keep a critical eye on anything anyone says in favor -- or opposed-- to gold. That is why I read what you said and considered it seriously. I'm keenly looking for evidence of a bubble, and you referenced a metric I use. I'd also recommend looking a bit into the history of gold, preferably by reading articles here: http://mises.org http://mises.org Here's the short summary, see if this fits with what you know of the world: Gold is historically been the best form of money because it was difficult to counterfeit, had reasonable value per given weight, was malleable, didn't degrade, etc. But governments want to spend more than they have, so they choose paper currencies over gold. The nice thing about paper is that they can make it "money" by passing a law, forcing people to use it... and they can print as much as they want. The downside is, they get addicted to this spending, and in doing so, they always need to spend more and more. The more paper there is in circulation the more pieces of paper it takes to buy anything tangible, and prices rise, which means costs rise for the governments and they need to print paper at an even faster rate. These effects take a very long time to play out. They ultimately result in a currency crisis, however. Gold is merely something that is difficult to counterfeit, and it is difficult to bring new mines into production. So it serves as a hedge against currencies. I don't think there's ever been a gold bubble. When gold has gone up in response to a currency, really it is the value of the currency declining with respect to gold. The amount of gold in the world doesn't change very fast- it can't- at least in terms of currencies, and thus really the "gold price" is the "price of the currency in units of gold." $1,580 is not a gold price, it is a measure of the value of the dollar.

JanezStupar 15y ago

This is quite interesting to hear. So in the US it hasn't taken hold yet? Here in Europe the buzz is starting, the MLM aspect has been less than a year old. So I have caught this in the early stage? Can someone else from the US confirm or deny econgeeker's claim? This is the specific scheme I was invited to: http://www.securitas-aurum.com/ http://www.securitas-aurum.com/ But its hard for me to believe that Slovenia (where I am from) is ahead of US on this one. We usually lag a year or two in such phenomena. So I can explain it in 2 ways -> You are either a nugget of gold, if your statements are legit, then there is still money to be made from this one. The other explanation is that you are one of the team doing the pumping. What does the hive mind have to say?

gyardley 15y ago
Well, I'm not the hive mind, but I've seen gold marketed very aggressively in America -- to conservatives. My National Review subscription has been full of gold ads for some time. Same with conservative talk radio. This makes sense to me -- conservatives in America seem far more alarmed about the size of the debt and its impact on the dollar than liberals. My guess is the level of gold hype in America varies dramatically from region to region.
- JanezStupar 15y ago
  You are not hive mind, but you are a voice. Thank you for your response.
econgeeker 15y ago
Certainly there is more awareness of gold in the USA than there was in the 1990s. On political radio- conservative or liberal- you hear "buy gold!" advertising. I've been hearing those ads going back, at least, to 2005! They were there in between the mortgage refinance ads back in the day. On TV you see people pitching "investment grade" and "rare" gold coins. They think numismatics are the way to go, and they are charging too much money. I've seen that since the 1990s. I bet the amounts of both of these kinds of marketing of gold is up significantly in the last 10 years. All around Europe, eastern and western europe, I've seen lots of signs at money changers and some banks who are happy to sell you gold. These signs are generally posters in the windows, not metal signs or painted, so this gives me the impression this is a new phenomena. I was very happy to see these signs, given my experience in the USA. In the USA, if you want to buy gold, you can spend way too much to buy it on the TV. Or you can go to one of the few local retailers who sell bullion - but generally their primary business is either selling collectable coins or selling jewelry. The bullion is a side business. Unless things have changed in the last year, it is a pain in the ass to buy gold in the USA. There may be one or two of these bullion dealers in a larger sized town. You can't just go to the money changer or the bank. I gave you several reasons for my perspective. Consider them critically. But if you're looking for someone to agree with you, and tell you I'm a dirty rotten capitalist who is full of it, you'll have no trouble finding that. I would strongly recommend that you not rely on my opinion, or that of the "hive mind" or anyone else to make any sort of financial decisions. You have to use your own judgement and you have to learn what you can about the subject. This is why I said, "If I'm wrong, I'll be punished"-- the market will take one action or the other, long after this conversation is finished. I would suggest reading economics books such as "Economics in one lesson" by Henry Hazlitt Free here: http://www.hacer.org/pdf/Hazlitt00.pdf http://www.hacer.org/pdf/Hazlitt00.pdf By all means, keep a critical eye on anything anyone says in favor -- or opposed-- to gold. That is why I read what you said and considered it seriously. I'm keenly looking for evidence of a bubble, and you referenced a metric I use. I'd also recommend looking a bit into the history of gold, preferably by reading articles here: http://mises.org http://mises.org Here's the short summary, see if this fits with what you know of the world: Gold is historically been the best form of money because it was difficult to counterfeit, had reasonable value per given weight, was malleable, didn't degrade, etc. But governments want to spend more than they have, so they choose paper currencies over gold. The nice thing about paper is that they can make it "money" by passing a law, forcing people to use it... and they can print as much as they want. The downside is, they get addicted to this spending, and in doing so, they always need to spend more and more. The more paper there is in circulation the more pieces of paper it takes to buy anything tangible, and prices rise, which means costs rise for the governments and they need to print paper at an even faster rate. These effects take a very long time to play out. They ultimately result in a currency crisis, however. Gold is merely something that is difficult to counterfeit, and it is difficult to bring new mines into production. So it serves as a hedge against currencies. I don't think there's ever been a gold bubble. When gold has gone up in response to a currency, really it is the value of the currency declining with respect to gold. The amount of gold in the world doesn't change very fast- it can't- at least in terms of currencies, and thus really the "gold price" is the "price of the currency in units of gold." $1,580 is not a gold price, it is a measure of the value of the dollar.