Tags: gold | price | bubble

Some Begin to See a Gold Bubble

By    |   Tuesday, 20 Oct 2009 09:46 AM

Gold to $3,000? Maybe $5,000?

Considering the flood of paper money the Fed has made available to halt the Great Recession and save Wall Street from itself, it’s not hard to find folks who will to tell you that gold is destined to bust all records on its way to becoming the only store of value left in a debased world.

Of course, ridiculous price forecasts often presage a bubble (remember the dot-com days?).

And, some market watchers say the fundamentals for gold — regardless of the headlines — simply don’t support such lofty numbers.

Gold mines have responded to high prices with heavy investment, a sure sign that supply will rise, reports Fortune.

Miners have dumped $40 billion into new projects since 2001, the magazine notes. Output is up 7 percent in just the first six months of the year. Meanwhile, industrial demand is falling on a weak economy.

Simultaneously, retail investors have dropped billions into gold via ETFs in hopes of a big payday ahead.

As a result, gold now has “some of the poorest fundamentals I've seen in the market for a long time," Kitco analyst Jon Nadler told the magazine. Kitco is a bullion dealer in Montreal.

Increasingly, that leaves small investors alone to pump up prices, a bad sign if you’re the last to get in on the run upwards.

In fact, some analysts fear that the price rise of the past few months was driven by hedge fund traders playing on the fear of a major financial collapse.

Now that danger seems to have subsided for good. Companies are reporting strong earnings this week, and a bottom appears to have settled in the housing market.

Nor does gold have a great track record, all things considered.

A lot of folks talk about how stocks have earned zero in the past decade, having only recently regained 10,000 on the Dow. Less discussed is the fact that gold has a long way to go surpass its 1980 high.

Adjusted for inflation, gold has to get to $2,312 to break even since that earlier record. It trades now at $1,063.

So why buy gold at all? Plenty of famous names, among them Warren Buffett, maintain that gold is essentially an insurance policy, a hedge against not inflation but an utter collapse of money itself.

The Omaha billionaire has warned repeatedly that Fed policy guarantees a long-term decline for the dollar. But inflation, while inevitable, can be controlled by a swift change in Fed interest rate policy.

In addition, even gold proponents like Jim Rogers will tell you that other commodities, especially agriculture and even oil, are better hedges against the slow degradation of the buck.

What are the alternatives? Surprisingly, the good old U.S. Treasury might be a better bet, reports SmartMoney magazine. Bond rates have stayed low, a sign that investors are not yet fearful of major inflation.

Meanwhile, the fundamentals of gold, just based on real supply and demand, suggest a gold price somewhere below $880 an ounce, maybe much lower, says SmartMoney.

© 2017 Newsmax. All rights reserved.

 
1Like our page
2Share
StreetTalk
Gold to $3,000? Maybe $5,000? Considering the flood of paper money the Fed has made available to halt the Great Recession and save Wall Street from itself, it’s not hard to find folks who will to tell you that gold is destined to bust all records on its way to becoming the...
gold,price,bubble
506
2009-46-20
Tuesday, 20 Oct 2009 09:46 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved