Will Gold 'Bubble' Burst?

I've been hearing a lot lately that the next bubble
to burst is the gold bubble. Its ripe, according to
Warren Buffet and George Soros, who do this stuff
for a living. Forbes had a good article on it last Aug.
Gold is always a bad investment. I wonder what effect
it'll have on the world economy when it drops $500
an ounce overnight.

YES! I've had this argument lots of times. At any given time there is always some fad investment, and now it is gold. Before that is was houses. Before that it was the NASDAQ. Before that it was junk bonds and penny stocks. Before that it was gold. I may be missing some periods of time.

If anyone disagrees I have four 1-oz. gold coins I'd like to sell at the fair market price. You'll save about $500 in sales tax.

Quote: Wizard

At any given time there is always some fad investment, and now it is gold.

Usually these are sound investments to begin with. They become a fad when the pros drive the market up, and the amateurs dive in to get a quick buck. And that's when the bubble actually happens. A lot of money goes into buying mroe of the current fad, godl in this case, that it keeps going up. But the rationale for investing may be gone by then. So it has to collapse sooner or later.

Quote: Wizard

Before that is was houses.

Just talked to a friend in Sant Cruz last night.
Their house was bought for 1.5mil in 2007
and was down to 900K when they bought it
in 2010. Now its down to 700K and he's fit
to be tied. And its not even that big, 3500sqft.
The same thing will happen to gold. There's
3-4 reality shows on now about gold mining,
they'll be gone overnight when the big correction
comes.

Hmmm good topic. Several years ago (2008 I think?) I decided to buy some precious metals, not necessarily as an investment (long-term or short-term) but more as a hedge against future super-inflation and disaster-scale economic collapse. My (admittedly shallow) reasoning being, if shit seriously hits the fan and our dollars are suddenly useless, I'll have something to barter with. Never mind that I own 2 100oz bricks of silver (these are massive bricks) and 2 1oz strips of gold, which are impractical for bartering with since they represent so much money.

I bought in at $906/oz for gold and $12.84/oz for silver, so I could sell now at a tidy profit. But, I'm going to stick to my original plan and hold on to them for the long haul. I agree that gold is probably going to crash in the near future...if I had an investment account I might consider shorting a gold ETF, but this is a bit of an advanced financial play for a stock market n00b like me. Not even sure if it's possible.

With regard to my stated purpose for holding on to the metals, a lot of people make fun of me, saying in a disaster scenario in modern day, gold and silver won't be worth anything. Compared to the olden days, when they were used for currency quite readily in the absence of government-regulated fiat money. I agree this is a possibility, but something tells me the historical value of these metals will hold up.

Now, about that post-apocalyptic future...on my list of 2012 NY resolutions was to learn how to fire a handgun and purchase one. Probably a better investment than the gold and silver anyway.

If anything, I would love to see the oil bubble burst and drop $40 bbl overnight.

Quote: Wizard

If anyone disagrees I have four 1-oz. gold coins I'd like to sell at the fair market price. You'll save about $500 in sales tax.

Wiz, what kind of coins are they?

I may be interested in making this transaction with you when I visit Las Vegas in March. I would be hesitant to put something of such value in the mail.

If I'm still interested when the time grows closer, I'll get in touch with you.

What gold bubble?
Gold is the traditional standard currency. Its fall has been due to the rise of US Dollar and later Euro. They became stable, solid, reliable currencies and gold just wasn't needed in that way.

In this day and age, what fiat currency can you call solid?

Until there is one, gold will keep a high value as a currency everyone agrees to be solid.

There is some overvaluing going on, since every investor understands the above, but there is no bubble, and so there is nothing to burst. Everyone knows gold will go down once currencies go up in stability. Mid-term players hope to jump off before the hump. Long-term gold bulls hope that it climbs further and they are still ahead after it drops.



Over the long term, gold isn't going to be as profitable as stocks, simply because it isn't really an investment. The term "investment" has been subverted and perverted by speculators over the years. You invest in things that create value to capitalize on the added value.
Buying suburban homes is not an investment, an illusion many homegrown "investors" were misled to believe (and got burned on), it's pure speculative trading. If the above sounds like heresy to you, consider this - suburban homes are a consumer product just like Nike Air Jordans, and you wouldn't consider the latter a true investment.

Buying gold is not an investment either. It's exchange of currency to a more solid form, 'the currency of currencies', and it's actually more like selling your stocks (except now you sell your currency). Speculators often get high return or negative return, their activity is little more than gambling. Gold is a hedge against the economy going south. It can get hotter at times, because speculators do short-term plays with gold as well, but it doesn't burst and it doesn't burn long-term players.

War with Iran might keep gold from sinking, otherwise it is quite overdue IMO and might go down as low as $900 an oz. I have sold all my gold stocks and some of my energy stocks [etf's]. Natural gas has tanked due to oversupply and I think it will keep oil from jacking too high even if world economies take off. It will go up though. My bet for oil in the short term is a dip, but I havent bet much on that, trying to time it is too hard. Gold, though: I'm out after a long ride.

Gold is not a fad. It's been sought after throughout time. It brought conquistidores to the country, and it's the reason east-coasters spread over to California and to Alaska. Gold will always be popular.