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Bubbles
gecko109
Posts: 8,231 ✭
A bubble is defined as a commodity, asset, or anything that soars in value in a short period of time and then crashes back down to pre-take off value....and often times even less.....in about an equal amount of time that it took to reach its top. We have seen it with tulip bulbs in the 1600's, the Soth Seas Trading company in the 1700's, GM in the early 1900's, dot.com stocks in 2000, and currently on the downturn of the housing bubble right now.
Does the rapid rise in price of gold and silver follow in the same footsteps? Are we seeing the making of a true financial bubble? Are higher prices being justified simply by previous high prices? Or are we actually witnessing the birth of a new, globally accepted "currency"?
As a serious PM bug, I have to wonder if this just isnt another bubble.....is this time really different?
Does the rapid rise in price of gold and silver follow in the same footsteps? Are we seeing the making of a true financial bubble? Are higher prices being justified simply by previous high prices? Or are we actually witnessing the birth of a new, globally accepted "currency"?
As a serious PM bug, I have to wonder if this just isnt another bubble.....is this time really different?
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The questions are there but in the mean time,
IT'S OFF TO THE MOON WE GO.
Both will send large and small investors into PMs (the metals themselves, stocks, or some type of derivative). At that time, the true bubble will begin to be inflated. Right now, in my opinion, only a few puffs have been made. A good deal of new money coming into PMs will push this relatively thinly traded market way up.
If you are a trader, that bubble could fill up a little and then lose a little air but if you are longer focused, it is my opinion that bubble has a long long way to go before it pops. When Sorus stated that gold was in a bubble, to the best of my memory, I do not remember if he qualified and quantified his statement about how large the bubble was.
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J6P wanted a house - bubble with the banking shenanigans that folks who paid attention knew was happening.
I don't think PM is even close to starting any bubble. Until the dollar starts getting inflated, or we start spending yuans here in the US, we still have a ways to go.
Now, I've been putting off a silver purchase for 2 weeks now due to taxes/bills/blah blah blah, and I cringe seeing $34 after seeing the $28 pullback, but that just reinforces the buy/holding I've been doing since 2000...even if it's been at relatively low levels to the hitters here.
CSF
If that is in fact the case, then the price rise for precious metals is over.
But that is not in fact the case.
Consider this, I just sold $500 face of silver in order to finance some nice Large Cents. I'm serious about Large Cents at this point in my life. Did I think I was "selling at the top"? Am I frustrated because silver has continued up since I sold some? No, I use precious metals as a piggy bank. Will I have trouble justifying buying it back at $45/oz? No, I won't.
I will add to my pile anyway at different points in time when the extra cash is available. It will function as a piggy bank and keep my capital away from the effects of Uncle Sam's inflation whenever I buy it back, and at whatever price. Frankly, it was nice to be able to have a liquid asset readily available when I wanted to spend it.
I knew it would happen.
Fortunately, for all of us, this forum can be a relatively good sentiment indicator. A few weeks ago long time bulls were asking if it was time to sell as silver moved over $25. The argument was put this way: surely silver is going to be lower than $26 in the next few years, why not sell now and wait for the inevitable pull back. Well, unless a person can dance between raindrops, there was no opportunity to reload physical as it rallied to near $30, pulled back to $26 and then took off again. I kind of knew it was a good time to be aggressive in the short term, but I don't tend to trade paper silver, and I am not a young, nimble, or particularly gifted trader.
Watch for these additional forum signs: Smart people, logical people, the long time permabulls, will tend to be selling 20% to 40% below the ultimate bubble top based on fundamental valuation. Newbies will flock in from the U. S. coin forum, asking newbie questions, about what to buy, where to buy, and then post their aggressive new buys. There is a trickle of newbies, but at the moment that trickle isn't enough to inflate a bubble. Keep watching.
Gold $3000 has been and continues to be a long term price target. When I first joined the forum, and gold was like $500, most folks thought I was a wild-eyed-idiot. When I was buying at gold $700, many were selling, many were telling me I was crazy, that gold was sure to go back down. On many investment related threads on the U. S. coin forum for the past few years, I wrote that silver coins at melt were the best game in town. I remember old threads with Gecko when he would complain about the prices, markups and spreads on various collector coins, and I would often tell him that silver coins near melt value were the place to be, if resale and investment was his primary interest.
agentjim007: Link to those Large Cents...
I knew it would happen.
Is the current $34 silver price too high, and a bubble, or was the $17 price of a few months ago artificially manipulated well under what a non-manipulated free market price should have been?
Are there such things as "negative bubbles?" If so, is it possible that a "negative bubble" popped, and we have now returned to "normal?"
As I said, I do not have the answer.
TD
How would you like to have a crystal ball at this point.
A little further down the road lies the answer and some of us will have the right path and some of us wont.
Where do you stand?
Everybody I know knows that I like the metals. Everybody. I don't bring it up daily or weekly or whatever, but if folks have paid any attention they know. I show a new shiny thing here and there, 1/10th gold or a silver round, whatever.
As it stands I get a discussion about the metals from exactly 3 people in my circle on any kind of regular basis. One is a trader buddy who I see all the time that asks about mining stocks or etf or physical price, anything really, he's learning and the tiny bit of info I have is still more than he gets regular. He's made money just paying attention basically.
The other is another mutal friend of the above, who is a trader, that taught my other buddy how to trade. No interest in metals for years listening to me and my other buddy talk. 2010 he perked up and was wondering why our other friend was making money off metals and jumped in. Done alright on the etfs and options I suppose, but physical is still pretty clueless, although I think he did start monitoring spot price maybe in Sept/Oct. He'd rather trade coal/steel but whatever, he knows that market better.
The other is just a buddy who has no investment interest for metals, but likes to shoot the breeze about it when I say I bought something at so and so spot and can't believe the prices.
When my co-workers finally start asking about PMs, that's when I'd even remotely start to wonder.
What we are witnessing are a few processes at work. The currencies are weakening on fundamentals
and structural deficits while gold is moving to reflect the risk of inflation. Silver could be in a bubble but
more likely it is on the verge of breaking the inertia which has held it at a small fraction of its proper val-
ue for decades or more. Silver is its own market and this market has been artificially suppressed so a
few can grow rich while silver was unnaturally used up.
There is not much silver in the world but there's a whole lot of money, a whole lot of gold, and a whole
lot of people who want to get rich. But even more than wanting to get rich are people who want to eat.
There are billions of us and each of us wants to eat every day and this can't happen without lots and lots
of silver. This is why someday silver demand will feed on itself and touch off a buying panic. When this
occurs there will be a new price for silver which more accurately reflects supply and demand. Of course
supply will still come out of the ground faster than it does for gold but investor demand will tend to keep
the price steady but with wider swings over the long term.
Once the process of revaluation begins there won't be much that can stop it. Obviously economic col-
lapse could do it but even this wouldn't take it back to the old price once the process is complete and
silver has found its proper valuation. Silver prices will reflect the health of the economy and business
rather than the risk of inflation like gold does. Rising base metal prices will increase silver production
and hold prices steadier.
We may have already begun the revaluation but it's still early to say. Bubbles can look a lot like what
we're seeing. In this case though much higher prices will disprove it's a bubble rather than prove it!!
We're probably headed for stagflation in the US, if not in it already. Any commodity with emerging market demand will maintain pricing power; anything dependent on pure consumer demand, historically 70% of the US economy, will suffer. The underutilized capacity in the US economy, specifically labor in many sectors, will reinforce low prices for non-essential consumer goods. Food & energy, watch out. Real estate however will be in play, and could present a fantastic opportunity during the next decade.
Is gold or silver in a bubble? I don't think so. Are prices too high for my comfort level as a buyer? Yes. I last added meaningfully back at ~$1000/oz. Will prices drop meaningfully in the future? Who knows, but I suspect not. I think high gold prices, like low long-term interest rates, slack consumer demand, and lack of demand-pull (or whatever the term is) inflation, is part of the "new normal" that Bill Gross describes.
In honor of the memory of Cpl. Michael E. Thompson
The chart that I have taped up over my desk is "Real Interest Rates, Gold & Silver Prices." The 90-day T-Bill rate or the Fed Funds rate (either will work) minus the rate of inflation = Real Interest Rate.
Metals do well with low real interest rates. The biggest problem is that real interest rates are not publicized because the government likes to disguise the rate of inflation (in order to reduce their entitlement payments and debt servicing load), which is used to determine real interest rates.
They can't raise interest rates now because it will crash the economic system. That may never change now that the system is wounded by unfunded liabilities, off-the books finance, debt approaching critical mass, and taxpayers with less money every day.
Paul Volker would tell you that interest rates will work over a period of time, but not without significant cost. There is no way that this government will take that route, in my opinion.
I knew it would happen.
Is this time different? I don't know. When was the last time the world as a whole operated 40yrs on unbacked paper and then began badly leaking oil? How did it turn out?
Compare previous bubble charts of oil, S&P, etc. to current silver chart. Silver still not in the same league. If you artificially depress the price of something for 10-15 yrs, you have to expect this type of outcome. In any case, it's still not even back to it's 1980 non-inflation adjusted peak. From spring 1979 to January 1980 silver went up 10X in less than 12 months with most of that action occuring in the final 3-6 months. Silver just doubled in the past 12 months and is up 10X in the past 8 yrs. Potentially, not even close to the 1979 mania. If silver is ready to peak out for all time, then what about rare earths and other usable metals that have done even better the past 12 months? Or is the real bubble the end of the 40 yr run of fiat currencies as the 120 yr economic cycle readies itself to go hard up from 2012-2014. Commodities are adjusting to the fiat currencies race to the bottom, nothing more.
Until the too-big-to-fail banks divest themselves of $200 TRILLION in otc interest rate swaps that are weighing on the market like an 800# gorilla keeping rates artificially low, not much is going to change. Those IR swap positions are still increasing, not decreasing....and that doesn't include positions that are not reported to the OCC.
Party line CPI-U is
roadrunner
if one has been following the reasons for PM's rising since 2001 then it's obvious the bubble itself doesn't even know it exits.
I have no doubt we're in a bubble for both metals. But that doesn't mean we've reached peak of high prices -- the peak could still be far in the future.
Gold is the mirror image created by the 40 yr old dollar bubble. Fix the fiat dollar bubble....and gold will disappear from the news. Simple as that.
If you don't fix it, then the system has to start over again with something new.
roadrunner
<< <i>The big question, which I do not have the answer for, is:
Is the current $34 silver price too high, and a bubble, or was the $17 price of a few months ago artificially manipulated well under what a non-manipulated free market price should have been?
Are there such things as "negative bubbles?" If so, is it possible that a "negative bubble" popped, and we have now returned to "normal?"
As I said, I do not have the answer.
TD >>
There was a hedge fund manager that recently confessed to using leverage to manipulate gold higher. When the trades unwound and the fund folded, gold went down. Maybe some other hedge fund managers heard the story, knocked some numbers around for silver and thought it was worth a go and are now using leverage to manipulate silver higher. It would not take much money, and it would explain a lot. Manipulation works both ways, but in general, tends to be easier and more profitable when manipulating prices higher.
I wouldn't say we are in the "return to normal" climb, since there has yet to be a public mania phase, plus the metals are reaching new highs, not just approaching old tops.
If that is the case we are in for a wild ride up here shortly.
<< <i>I think eventually there will be a bubble in gold and/or silver, but we are certainly not near the top yet. Based on the prototypical bubble chart below, I'd say we are in the middle or end phases of "awareness". The general public certainly hasn't gotten on board yet.
I wouldn't say we are in the "return to normal" climb, since there has yet to be a public mania phase, plus the metals are reaching new highs, not just approaching old tops.
There will be a "new paradigm" in silver.
It will not be followed by a blow off but the price will dramatically overshoot
and fall back to a more realistic value. Sell when your idiot brother in law
buys and you'll do just fine. If you're unfortunate enough not to have such
a great contrary indicator close at hand just wait until you hear strangers
talking about the opportunity.
We aren't even close to this yet.
Sure, prices can fall but there will be a change in attitude about silver and
when the last person catches on the price will drop like a rock. This time will
be different and you should buy on the drop. Buy hard. Replace everything
you sold and then some.
We should be at least a year away and it could be twenty.
and it always goes up before it goes down,
and it always goes down before it goes up.
Repeat as necessary.
Not at all concerned. I expected this correction, there always is.