Are we facing with a gold bubble or not?

Posted: October 11, 2010 in Burse

This is the question that I addressed to al my connection (but not only) from “Linked in”. We might consider it some kind of an “professional sentiment index”, at a much lower scale.

For those who are interested, you can see the answers that I get, exactly in the form that I received them! (PS. The question and answers can be found also on “Linked in” platform.)

1. Frank Feather Interim CEO, Future-Proof Strategies, Unmatched 30-yr Trend Tracking & Forecasting Record, Dynamic Keynote Speaker.

A bubble is a bubble. Nobody can argue otherwise.
Apart from a few industrial uses and human fascination with it for jewelry and trinkets, it is just glittering dirt of no significant value.
The price is manipulated by rampant speculators and the price will crash.

2. Andy Avery Experienced Inventory and Demand Manager

Gold is a traditional hedge against inflation. When you have out of control government borrowing, future inflation becomes much more likely. I sure as hell don’t want to be holding somebody’s paper when they turn the government printing presses up to 11 to inflate away $14 trillion in debt. I’ll stick with the gold.

3. Mihai Radu Hedging Strategist

That being said, the developed countries are in for a very long period of readjustments: over leveraged government balances plus a level of very high indebtedness at individual level, together with tougher rules and regulations for the financial system leaves absolutely no room for growth for the next many years (3 years probably Europe and 10 years for North America and Japan). The unwinding of the leverage will put its strains on the developed countries economies, and, at times, on the emerging countries too (as it happened in 2009). So, the central banks and the governments of the developed markets will have two choices:
1. To let the de-leverage process happens and the bank fail – which can create havoc not only in the local economies but also in the social and political life of those countries, or
2. To print money and try to re-monetize their suffering economies.
I don’t know about you, but my guess is that the governments will very much prefer the second option.
Printing money creates distrust in local currencies – so people will look for ways of protecting their savings. There will be really very few places where to hide: emerging markets currencies (I am talking about the strong ones from Latin America and Asia, not about Eastern Europe) and commodities. Within the commodities space, people will prefer precious metals the most and Gold in special. It is not a new phenomena, it happened before in the ’29-’45 and in ’66-’82 for reasons absolutely similar. So, as can be seen from history the unwinding of the leverage process takes a very long time (16 years on average). During this period of time people choose Gold and bonds as their main investments. In both cases Gold finishes at very high levels. The unwinding of the current debt started in Feb 2007. So we are a long way from seeing the end of this crises in Developed countries or the end of the Gold bull. Probably Gold will, at minimum, retest the old high in inflation adjusted terms – that will be roughly $2200-$2300.

4 Gabriel Avacaritei Expert in Organizing Thoughts & Publishing Solutions.

If it is a bubble, it is here to stay and grow, for many years. What it is so special about gold is that it comes with FEAR bubbles, not with GREED bubbles, like all the other commodities. And fear lasts more, especially since we’ve become specialists in entertaining thrillers!


5 Adrian Codirlasu, CFA, PhD Senior FX Options Dealer with ING Bank

Este un bubble in formare. Si probabil, avand in vedere lichiditatea pe care o o introduc in sistem (qe, dobanzi reduse) bancile centrale din G20, pentru a nu-si lasa monedele sa se aprecieze, s-ar putea, ca in viitorul putin mai indepartat sa se formeze asset bubble-uri si in alte clase de active.
Asset bubble-ul in real estate in US a inceput sa se formeze, cand, in 2001, pentru a nu lasa economia sa intre in recesiune, FED a avut o politica monetara accentuat expansionista.

Cred ca este un inceput de bubble, generat de “razboiul” (cum a inceput sa i se spuna…) asupra cursurilor de schimb.
Cu atata lichidiatditate in piata pe monedele G7 (si in special USD, JPY si CHF; si probabil si EUR va urma avand in vedere ca incep sa dea semnale ca nu prea le place aprecierea euro) probabil vor urma si alte clase de active, pentru ca acesti bani, ca de fiecare data, nu se vor duce in economia reala ci in tranzactionare de active (de exemplu bull market-ul de la mijlocul anilor 2000 si cel de anul trecut). Si, odata ce bubble-ul e pornit se autointretine – pana la crah.
Ce ramane de facut este anticiparea triggerului care va genera corectia (un nou acord global asupra ratelor de schimb, intarirea politicii monetare de catre bancile centrale).

6 Bernard Gore Programme and Project Management Consultant

The price keeps rising rapidly – so that is a bubble by definition unless you believe it will never drop – that it will keep on rising forever or level out permanently at some stage. Since gold has only a limited intrinsic worth in current usage, and is unlikely to find one (if anything te opposite) then logically it is likely to eventuallydrop sharply back, and the bubble will have burst.

7 Jan Schalkwijk Portfolio Manager, JPS Global Investments

From a historical perspective, gold is still well below its inflation adjusted high. The bullish case for gold:
Global economic uncertainty, a weak dollar, central banks’ massive monetary support, a growing Indian middle class might mean more demand for gold..(long-term), low interest rates reduce opportunity cost of gold, which has a zero % yield.
Short-term markets are markets and I would not want to profess any certainty that sentiment for gold will remain positive in the short-term. However, gold has had some fundamentals behind its ascent, so I think one cannot just write it off as a pure speculative bubble. Of course, nothing can go up forever; so there is conceivably a point at which speculation substitutes fundamentals.

8 Nay Lin Maung Cashier at Henley Restaurants, Inc

When currency war is over, everything is back to normal.
Right now, buying the gold is hot topic. I understand people feeling about losing value of currencies that they hold.
Please very careful what he or she invests in commodities market because his or her money is going to put in the vault for couple years to come.
Buying gold is personal choice.
I am not going to make any arguments about whether he or she can buy the gold or not.

9 Radu Limpede Founding Member (2003) at JCI Bucuresti

I’d rather say a real rally on gold will come during the coming years; now we just see a warming up.

10 Bogdan Erdeli M&A professional

I will simply suggest that during the crisis we tend to go back to original values. Risky financial markets and schemes, growing deficits of almost all leading countries scare most of the investors which are trying to secure their wealth investing in solid gold.
I think is normal and some how predictable. Silver and other rare metals are also on an increasing trend.

11 George Feist [Lion] 360˚ Website and Digital Marketing Consultant

As long as the Fed keeps printing and devaluing the $$$ it is historically inevitable that gold prices will rise. I would watch for a price drop later in November if the repubs take control of congress on election day.

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