Is Gold the Next Bubble?

[Elmore Furth]

I do love manias in investing. It is so much fun to watch the lemmings run here and there.

It's been the amazing, runaway boom of the past decade. If you'd put your money into gold at the lows about 10 years ago, you'd have made a nearly 400% return. That's left pretty much everything else—stocks, China, let alone housing—in the dust.

But with gold now trading near record highs, the big $1,200-an-ounce question is obvious.

So far gold has followed the same path as the previous two bubbles. And if it continues along the same trajectory—a big if—gold today is only where the Nasdaq was in 1998 and housing in 2003.

Gold is a high-risk and potentially dangerous speculation. Anyone thinking of investing needs to do some serious thinking first.

Is Gold the Next Bubble?

[bluestateguy]

1. Serves them right

Only wackos and paranoid conspiracy theorists buy gold.

[Mojorabbit]

5. I have a bit

and it has done way better than any of my other investments. I am not a wacko nor paranoid. It is a part of a very diversified portfolio and I bought it at about 300 or so an ounce many years ago plus I inherited some. If it drops again, I can have some jewelry made from it.Shrug.

[pokercat999]

9. I don't understand the INVESTMENT value of gold. It seems

to be a poor investment as far as return because it pays no dividends and has to be sold to extract any profit or return. If you buy "paper" gold from a company you have no idea weather they actually have purchased the gold you for which you have paid.

If the world falls apart I won't want your gold I'll want useful things like food and bullets.

[Mojorabbit]

10. I have that too

A huge garden and an ever expanding small orchard. If my husband lost his job due to illness tomorrow, I could sell the gold I have on ebay right now with no problem and it would give us a cushion unlike our IRA mutual funds which are about worthless. Still I agree with you that it is not good as a sole investment and paper gold is a crapshoot.

[Art_from_Ark]

14. In 1968, gold was $35 per ounce

Today, it is more than $1200 per ounce. Companies that pay dividends can go to crap, like GM. What good does a 3% dividend do if the stock price goes from $60 to $5?

[Art_from_Ark]

13. And you base this opinion on what, exactly?

I guess India, China, Sri Lanka, even Mauritius, are just "wackos and paranoid conspiracy theorists"? :eyes:

[DJ13]

2. The next bubble to pop is probably China and East Asia

Gold will probably hold up through that before collapsing.

[On the Road]

3. Gold Will Probably be Lower a Year from Now

the question is always when. It's a good time to use technical trend indicators, since a move is likely at some point -- just a question of separating signal from noise.

[pscot]

11. The trick is to buy just before it goes up

and to sell before it goes down.

[ShadowLiberal]

4. With all the advertising on TV they do it wouldn't be surprising to see a gold bubble

I see so many commercials telling you to invest in gold, and a guy going "it's the smartest move I ever made", but those commercials make me wonder how much the value of gold would drop if companies weren't hyping it up on TV as a good investment.

There's another flaw to gold to, storing it once you get it. From what I understand when you buy it you have to pay an annual 'fee' to someone for storing your gold, you don't have to do that for other investments like stocks, because there's nothing to store except the money you paid for it. Only way to get around a storage fee is to store it in your own house, and gold is heavy and not easy to move, not to mention the cost of getting it transported to you.

Then there's also the problem of selling your gold, if you go to one of 'cash for gold' shops, or pretty much any other shop willing to buy gold their customers bring in they WILL rip you off quite badly. I've seen a news report that found that one of those places was paying people only 10% of the value of the actual gold (though to be fair, this was actual jewelry that a gold person would probably melt down).

[PassingFair]

7. Most of the places give you about half the current "value" of the gold.

Lately, though, I've run into "cash for gold" buyers
that will give you $100 under the current value.
They are happy to make the hundred on the transaction.

That is how competitive it has become around here.

[Art_from_Ark]

15. Gold is currently $1218 per troy ounce

One troy ounce = 31.1 grams.
454 grams = 1 avoirdupois (grocery store) pound

Essentially, 14.5 ounces of gold ($17,600 worth) is the equivalent weight of approximately one grocery store pound. You could easily put that amount of gold in a can of string beans. The cost to ship that gold by US Post Office registered mail (the most secure way) is approximately $40. If you don't want to store the gold at home, you can rent a small lock box at your bank for a small annual fee.

[angryfirelord]

6. I've been looking for one myself

Conventional wisdom says to do what is contrary to popular opinion. However, markets tend to not follow that from time to time. I suspect what we should look for are interest rates. If they go up, they'll start attracting more investment here and away from gold.

[Ikonoklast]

8. I've read predictions of a low of $600 to $800 an oz., within six to nine months.

Can't remember the analysts name, but he was aggressively selling.

Dollar is still strengthening, and China real estate is the next bubble to pop.


Cripe, look at oil. Even though they really tried to re-inflate oil, it's getting hammered. Usually bad for gold.

[Art_from_Ark]

12. Gold analysts are a dime a dozen

The ones with unrealistic low-ball figures like what you cited are just as unreliable as the ones who chant "Gold to $2000".

As far as aggressive selling goes, Gordon Brown, when he was Chancellor of the Exchequer (UK equivalent of Treasury Secretary), was aggressively selling Britain's gold at less than $300 per ounce-- just before gold entered a protracted bull market.

[Art_from_Ark]

16. There is a big difference between the NASDAQ bubble, the housing bubble

and today's gold price.

First, the NASDAQ bubble was based upon the general public's appetite for anything "high tech", no matter how flimsy the business model may have been. Add to that the ability of NASDAQ companies to dilute stock by issuing more practically any time the "need" arose, it was a disaster in the making.

The housing bubble was fueled by domestic land speculators who were producing housing in quantities far greater than the public could absorb, and selling housing to people who were getting EZ loans for amounts that were far in excess of their ability to pay back.

Gold, on the other hand, is a monetary medium that has a worldwide market. The Glenn Becks can hype it all they want, but their efforts will have little effect on the world price (although they do seem to have an effect on the domestic US premiums for bullion coins, especially US Mint products). Gold is a resource whose amount is limited by nature. Savvy investors have a general idea about the total amount of gold that is potentially available, about the amount of gold that is being mined, about the amount of gold that may be mined in the future. You can't just start producing gold-- it takes up to 10 years just to bring a gold ore deposit to the production stage. And the high price, which might lead to higher production of crude ore, doesn't necessarily equate to greater production of refined metal.

However, saying that, I would not recommend investment in gold bullion at the current level, especially by people who don't know what they're doing.