Gold "bubble" talk
RedTiger
Posts: 5,608 ✭
I was having a conversation with some younger relatives, and I mentioned that gold has been strong lately. One of them replied, "I heard that gold is a bubble." Well, folks, that is GOOD NEWS for us long term gold bulls. I mentioned my long term price target of $3000, and he was a bit stunned. $3000? I told him that many middle class Americans are selling their gold, not buying, via "Cash for Gold." That I thought much of the retail gold demand is from China, and that the Chinese economy continues to grow while the U. S. economy is stuck.
I went on to talk about all the small time investors piling into bonds and bond funds and how that is almost sure to end badly. I added, that I don't think that happens right soon, but longer term there will be a lot of unhappy investors when interest rates go up again.
Anyway, anecdotal good news for all of us long term gold bulls, gold bubble talk has made its way into the public meme. I didn't follow up by asking where this relative heard about the bubble, but that doesn't matter much. Bubbles hardly ever top out when the public thinks it is a bubble. It is the opposite, when the small fish are all excited and want to know how to get in, or even start telling me how they have made a killing in the gold market (or whatever market) or start giving me advice that I should get into gold (or whatever), that's when the froth is peaking and about to spill over.
I went on to talk about all the small time investors piling into bonds and bond funds and how that is almost sure to end badly. I added, that I don't think that happens right soon, but longer term there will be a lot of unhappy investors when interest rates go up again.
Anyway, anecdotal good news for all of us long term gold bulls, gold bubble talk has made its way into the public meme. I didn't follow up by asking where this relative heard about the bubble, but that doesn't matter much. Bubbles hardly ever top out when the public thinks it is a bubble. It is the opposite, when the small fish are all excited and want to know how to get in, or even start telling me how they have made a killing in the gold market (or whatever market) or start giving me advice that I should get into gold (or whatever), that's when the froth is peaking and about to spill over.
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Conversely, bonds are in a bubble as OP mentions, and that will not be pretty either. The problem with the bond bubble is - what's the upside? Get out of that bubble now while you still can.
Excellent point. You get a terrible yield and will get killed if rates turn higher. I sold my bond funds 2 weeks ago. Could have made more, but the downside risk is enormous
As far as gold is a bubble, I think this is a great observation. I don't know anyone who owns any gold or gold funds. They think I'm a quack. Funny, when Nasdaq was 4000+, no one was calling that a bubble. "things were different" that time.
Yet gold is no where near its inflation adjusted 1980 high and its a bubble. good.
<< <i>I was having a conversation with some younger relatives, and I mentioned that gold has been strong lately. One of them replied, "I heard that gold is a bubble." Well, folks, that is GOOD NEWS for us long term gold bulls. I mentioned my long term price target of $3000, and he was a bit stunned. $3000? I told him that many middle class Americans are selling their gold, not buying, via "Cash for Gold." That I thought much of the retail gold demand is from China, and that the Chinese economy continues to grow while the U. S. economy is stuck.
I went on to talk about all the small time investors piling into bonds and bond funds and how that is almost sure to end badly. I added, that I don't think that happens right soon, but longer term there will be a lot of unhappy investors when interest rates go up again.
Anyway, anecdotal good news for all of us long term gold bulls, gold bubble talk has made its way into the public meme. I didn't follow up by asking where this relative heard about the bubble, but that doesn't matter much. Bubbles hardly ever top out when the public thinks it is a bubble. It is the opposite, when the small fish are all excited and want to know how to get in, or even start telling me how they have made a killing in the gold market (or whatever market) or start giving me advice that I should get into gold (or whatever), that's when the froth is peaking and about to spill over. >>
Gold will not be in "bubble" territory until it surpasses 5k/oz imo. Where we are right now isn't even almost 1/2 the inflation adjusted amt.
People continually refer to the 1980 high of $800 but who is to say that was accurate price back then. How can you analyze one bubble with another?.
<< <i>Gold is at the same point as real estate was in early 2004. A great time to get in and make some money (although much better if you were already in) as long as you realize the ride won't last forever.
Conversely, bonds are in a bubble as OP mentions, and that will not be pretty either. The problem with the bond bubble is - what's the upside? Get out of that bubble now while you still can. >>
Plenty of folks have made good money on bonds and bond funds this year, there has been plenty of upside. Bond ETF TLT is up about 15% year to date, add the dividend and that is a close to gold's stellar performance. May as well say there is no upside to gold, as saying there is no upside to bonds. TLT is with no leverage, no fancy games, about as plain vanilla as it can get. With futures, a bullish bond trader could have made 150% using a relatively conservative 10x leverage on the futures. At full margin and decent timing that might be more like 600% because the margin requirements on bond futures are smaller than most other futures contracts. Bullish option traders could have even made more, with just a bit of luck on timing. I don't know about the rest of you, but those figures demonstrate decent upside, and that is just for the nine months of calendar 2010.
I don't expect the majority on a precious metals forum to ever favor bonds, but don't overstate the case. Many of those that shorted bonds earlier in the year have lost their shirts. There was a popular thread about six months back, on this very forum with many suggesting TBT (double inverse bond ETF). Those that took that trade are down about 33% from the levels mentioned (aka as losing one's shirt).
Equities (dot.com) and real estate were able to bubble because they had a bottom line value that was greatly exceeded in bidding. In the case of the dot.coms there was an actual value you could put on the companies based on their assets. Same with real estate - it has a bottom line value based on what it cost to buy land and build an equivelent property. Where's the bottom line on gold? It's very limited industrial use? How do you assign a bottom line value to physical gold? You can't. It will always ONLY be worth what someone else will pay for it. A bubble can only develop when an asset becomes overpriced in relation to it's "real" value. Gold's real value (industrial use) was exceeding a long time ago. Where was the bubble then?
The debt bubble hasn't finished popping. When it does it will take treasury bonds with it as they are nothing more than debt.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>RedTiger, I wasn't talking about what could have been made, I'm talking about from today going forward. How much lower can rates go? There is little upside because rates can't possibly go too much lower. Gold on the other hand, can go to $2000, $5000, etc., not that I'm making that prediction, but gold has plenty of upside possibilities. >>
Good point. I might even agree with you in terms of where the various markets are likely to go.
However, you are trying to make rational arguments. Bubble markets, by definition, are not rational. Keep in mind, that many on this forum were making similar arguments about bonds much earlier in the year. Many were dead wrong then. Many will be dead wrong going forward. True market bubbles tend to expand much further than rational people can imagine.
If traders can't see any upside to bonds, it is like the premise of the original post--it is a good time to go the other way. Buy bonds, aggressively, because if the pundits say there is no upside, that means in reality there is the chance of HUGE UPSIDE. What is the logic here? If all the rational people see no upside, they short the snot out of bonds because if there is no upside on the long side, there is no downside on the short side. If enough rational people are loaded short, there is a big chance that they are about to get their clocks cleaned by an irrational bubble market. Again, I'm not talking fundamentals or numbers, but about sentiment and how markets work, and why so many rational and smart people lose their shirts in the markets.
What's that saying? The market can stay irrational longer than I can stay solvent? I don't know when the time for TBT will come, but come it will.
Also keep in mind 6 months is a long time ago. No one holds long term any more. The only thing I've held long term has been CLCT with its nice dividend.
There is an article on marketwa tch talking about mortgage rates going to zero. So obviously there is room for bonds to go higher from here
It will be interesting to see how this all plays out.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Whether gold is a bubble or on a bubble sure stirs excitment in the populace and in politics. The paper's been driving us for a long time but some see that vehicle running out of gas since a bubble in the stock market, housing, financial sector etc., POPPED (or at least corrected to a point that impoverished many), and it's taken hold of a lot of people's wealth . Those who were wealthy enough or smart enough, survived that onslaught, retraction, adjustment or whatever it's called in the "financial world" over the past couple years.
You have to love family and friends, but in the long run (as gold is concerned)... I just do not see it as a "bubble". How could it be ? I see a correction or retraction in the stuff over the next few months (after the holiday season another long run up), but it cannot lie to me like Bernie Madoff, or steer me like Cramer. And I know better than to pay premiums over spot as some in the media tout it , in spite of it being "over inflated" at the retail level.
What always makes me curious though ?????? Where will it be tested on this round down ? $1000 ? $1050 ? $1100 ? $1150 ?
It's pretty clear it's met resistance at the $1300 level, but this "bubble" if it is a bubble will only be deflating to where ? What commodity would the populace run to ? The short term isn't looking any brighter than the long term for me. It's always a day at a time and as I see it, it's always good to hold some.
<< <i>
<< <i>Gold is at the same point as real estate was in early 2004. A great time to get in and make some money (although much better if you were already in) as long as you realize the ride won't last forever.
Conversely, bonds are in a bubble as OP mentions, and that will not be pretty either. The problem with the bond bubble is - what's the upside? Get out of that bubble now while you still can. >>
Plenty of folks have made good money on bonds and bond funds this year, there has been plenty of upside. Bond ETF TLT is up about 15% year to date, add the dividend and that is a close to gold's stellar performance. May as well say there is no upside to gold, as saying there is no upside to bonds. TLT is with no leverage, no fancy games, about as plain vanilla as it can get. With futures, a bullish bond trader could have made 150% using a relatively conservative 10x leverage on the futures. At full margin and decent timing that might be more like 600% because the margin requirements on bond futures are smaller than most other futures contracts. Bullish option traders could have even made more, with just a bit of luck on timing. I don't know about the rest of you, but those figures demonstrate decent upside, and that is just for the nine months of calendar 2010.
I don't expect the majority on a precious metals forum to ever favor bonds, but don't overstate the case. Many of those that shorted bonds earlier in the year have lost their shirts. There was a popular thread about six months back, on this very forum with many suggesting TBT (double inverse bond ETF). Those that took that trade are down about 33% from the levels mentioned (aka as losing one's shirt). >>
Timing any market, bonds included, is risky. I have a good % of my worth in bonds and they have done well the last few years. There is a chance though, that the bond market could be hit hard so I have done a few things in anticipation of such an event. Got rid of all the long term stuff, that get's hit the hardest, moved some Treasuries into quality corporate issues, made a big adjustment in my "junk" holdings, another bond component that could really hurt, and reduced the overall bond component of my portfolio.
Remember though that things like Treasuries are still going to be worth their redemption values if held. As far as "bubbles" go, bonds are not quite like other investments with no limit on the downside.
Oh, what did I do with the cash, or at least some of it??
What do you think???
<< <i>Gold is at the same point as real estate was in early 2004 >>
I dont believe this is even remotely true.
Until our government reverses it's course on spending, spending, spending - and fosters an economy based on investment and production - gold has no limits to it's upside potential.
Our economy has been on life support since 2008, and the stability seen lately is completely false as it's being propped up - the sad part is the general public has no idea that we are still not out of the woods.
I disagree with that. Our economy has been on life support much, much longer than that. Since 2000, Mortgage Equity Extraction (MEW) allowed people to suck money out of their houses and buy cars, kitchens, vacations, etc, that they could never afford. In the late 1990's people sucked money out of their stock gains. The elderly could bank on a life of "luxury" collecting SS off their kids and grandkids backs.
One could argue that when FDR took us off the gold standard in 1933, the whole economy has been one wild ponzi scheme waiting to collapse.
<< <i>Our economy has been on life support since 2008
I disagree with that. Our economy has been on life support much, much longer than that. Since 2000, Mortgage Equity Extraction (MEW) allowed people to suck money out of their houses and buy cars, kitchens, vacations, etc, that they could never afford. In the late 1990's people sucked money out of their stock gains. The elderly could bank on a life of "luxury" collecting SS off their kids and grandkids backs.
One could argue that when FDR took us off the gold standard in 1933, the whole economy has been one wild ponzi scheme waiting to collapse. >>
I thought Nixon took us off the gold standard when he closed the exchange window. There's an interesting story out there about France showing up with a battleship in NY harbor just before the window closed to trade their dollars for gold.
FDR took possession of all Americans' gold, but I believe the dollar was still backed by it.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I'm only 48 and I paid in 30 years already. Right or wrong I want my
<< <i>Hey dbcoin we paid that SS money in we expect to get it as promised.
I'm only 48 and I paid in 30 years already. Right or wrong I want my
Its not yours, it belongs to the guy currently getting his checks. Think PONZI! Just hope that the scheme is still in operation when it's your turn.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I can tell you a vast percentage of Americans are planning on it as one.
You can take that anyway you wish
<< <i>I know SS was never set up to last as a retirement plan.
I can tell you a vast percentage of Americans are planning on it as one.
You can take that anyway you wish
Actually it was indended to provide supplemental income to private retirement plans. They will have to either raise the retirement age and/or contributions or reduce the payouts in order to keep it alive. The mass retirement of baby boomers will bankrupt them eventually. Member of the family works for them and says most of the money does not go to retirees, it goes to disabled workers and dependent survivors of payees who died early.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>Our economy has been on life support since 2008
I disagree with that. Our economy has been on life support much, much longer than that. Since 2000, Mortgage Equity Extraction (MEW) allowed people to suck money out of their houses and buy cars, kitchens, vacations, etc, that they could never afford. In the late 1990's people sucked money out of their stock gains. The elderly could bank on a life of "luxury" collecting SS off their kids and grandkids backs.
One could argue that when FDR took us off the gold standard in 1933, the whole economy has been one wild ponzi scheme waiting to collapse. >>
I couldn't agree more, home equity loans and the re-finance game have supported our economy since the middle 80's. Or best and brightest, who used to design and build the things that made this country great turned to finding new ways to get the guy on the street to forever be in debt to them, then took that money and parlayed and leveraged it until the whole scheme imploded. Congress slapped their hands, said "naughty" and did nothing else of substance. What could have been an opportunity to put some teeth back into banking laws was wasted. They will go on being irresponsible because being "too big to fail" won't get you a bailout from the taxpayers anymore. Unless of course, you're to big too fail.
I remember reading, probably in the 80's, in what I suspect was probably the "Atlantic" magazine, about the new creation of financial derivatives and what a danger they presented to the nation. The author said there was practically no end to the downside risk and every time I heard the term "derivative" over the next 25 years I thought of that article.
On at least three occasions during my working career the rates or threshholds for SS were changed(actually the thresholds were changed a half dozen times), upwards of course. Each raise was accompanied by the message that SS was underfunded and with each change we were told that now things were fine, as far out as we looked. It's been called a Ponzi scheme, if it isn't, it's pretty close. Now that they have taken all the money out and left IOU's, they are working to just lump the money in with the regular obligations of government. And they wonder why people have lost faith with government.
we are the same age so I'm in the same boat as you. SS was never meant for retires people to live this life of "luxury"; traveling the world, new cars, vacation homes. It was meant so retirees could live a life with some dignity.
by the time we retire, if you have any assets, they will means test your SS away from you thru taxation. Hence, buy gold; it's off the books. You can look poor on paper and government won't know.
Gold is not a bubble, the dollar is a bubble.
<< <i>Our economy has been on life support since 2008 >>
Obviously, it has been the pits much longer. Agreed.
But one has a hard time pointing to a single event that signaled "turning on the ventilator" other than the 2008 meltdown.
Many chartists seem to do that consisently when drawing their trend channels. A former high (or low) can often predict a future high (or low) by ratioing appropriately.
What always makes me curious though ?????? Where will it be tested on this round down ? $1000 ? $1050 ? $1100 ? $1150 ?
Considering that gold hit $1225 and then retested to $1044 in February, I'd say we've already been down that road. Something like the last all time high/breakout point seems to be a good candidate (ie $1265).
You can look poor on paper and government won't know
With this $600 reporting criteria when selling precious metals, you'd get reported via the buyer's 1099 if selling a 1/2 oz or more of gold. So if that bill remains in effect, they're gonna know. Either that, or never sell a darn thing in your lifetime, then they won't know.
Obviously, it has been the pits much longer. Agreed.
But one has a hard time pointing to a single event that signaled "turning on the ventilator" other than the 2008 meltdown.
I think the Oct 2007 SM peak was really a false high as it was actually 30% less than the 2000 high when dollar adjusted (dollar lost 40% of its value from 2001-2008). That Oct 2007 "peak" was probably the corrective leg pullback from the 2002-2003 lows. And then the Oct. 2008 washout was the (3rd) parabolic leg down. Overall an 8 year correction following the 17-18 year bull run. Question remains if that corrective leg is continuing to count up (ie 10-1/2 yrs currently) or has it already reset into a new bull run that is only 1-1/2 yrs old.
roadrunner
Liberty: Parent of Science & Industry
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>
<< <i>Our economy has been on life support since
Obviously, it has been the pits much longer. Agreed.
No wonder our healthcare costs are so high.
Knowledge is the enemy of fear