Is GOLD (/silver/etc) a bubble?

[scriabinop23]

Quote from tmarket:

Euro-Denominated Price Of Gold Hits Record
Submitted by Tyler Durden on 02/19/2010 13:33 -0500

I imagine the chart of amount of global aggregate assets in nominal terms outstanding looks similar.

 

[makloda]

Quote from Debaser82:

backyard has outperformed 90% of all hedge funds this decade?

If so then there it is, the edge that you are looking for.

You confuse hindsight bias with edge.

 

[Optional]

I have said the exact same thing before. I can only hope that gold and silver fall by 50 percent so we can get rid of the riff raff as we March towards upside prices that most never dreamed of.
Most people do not own Any physical precious metals

Quote from Misthos:

I'll add some of my own anecdotal observations.

During the tech boom, just about everyone I knew owned tech stocks. It was a frequent topic of discussion.

During the housing boom, many of my friends and relatives bought homes and we frequently discussed the rising home values. We were not speculators, we were just at that right age to buy a home, late twenties to mid thirties. Luckily, we all bought prior to 2004, so we didn't hit peak.

Three years ago, I was telling my friends that the days of bubbles are over, that maybe gold may be a good investment. That maybe all this wealth we see around us is illusory and credit bubbles do not end well.

They all thought I was nuts. None of them, aside from their wedding bands and wive's jewelry, own gold. Out of 30-40 people I can think of, NONE OWN GOLD. And most still think this is a short term recession.

Another story:

I recently visited my parents. Previously, my mother said that she noticed a cash for gold kiosk opened at the local mall. She had an old bracelet that was scratched, so she asked for a quote. They said they would give her $200.00 for it. She didn't need the money, was just curious, and declined to sell it.

I remembered that story so I brought a stamp scale the next time I visited my parents. I asked to look at that bracelet. It was 18K gold, which is 75% gold content. I weighed it at 1.1 oz.

Melt value of that bracelet was at least $800.00. Remember, they offered her $200.00

 

[ammo]

anyone remember beanie babies, i think it's a fad that will turn out very badly for longs

 

[Debaser82]

Quote from makloda:

You confuse hindsight bias with edge.

I'm sure you would have said gold could go up 50% or down 50% at 250$ an ounce 10 years ago and rightfully so.

Each investment decision requires a certain amount of bias in advance in order to chose sides.

I posted on ET before how most gold bulls distinguish basically 4 factors as the main driver behind this bullmarket in gold and those of the past.

1: Geopolitical/economic dislocations.
2: Negative real intrest rates.
3: The Dow Gold ratio as a measuring instrument on paper VS hard asset cycles.
4: Investor Mania as a signal of possible bubble forming.


If and when one or more of these factors were to come under pressure that would obviously influence the attractiveness of remaining long for the levelheaded gold investor.

To each to decide if the latter is the case today.

 

[Humpy]

Should the world economy implode then gold would be king, just as it was in 1920s Weimar Republic days.

It always looks great on decorating women. Especially prized in Eastern countries.

Although industrially pretty useless it will always have a good value.

For an industrially useful precious metal try platinum. The world's reserves are small and the demand is large for exhaust systems, fuel cells etc.

 

[makloda]

Quote from Debaser82:

If and when one or more of these factors were to come under pressure that would obviously influence the attractiveness of remaining long for the levelheaded gold investor.

So what do you do if the market suddenly doesn't agree with what your "4 factor" model is saying? What if it drops 30, 40%, 50% even though all signals scream buy? Buy more? Sell all? Wait and see? Panic?

I assume most "level headed gold investors" look to add on weakness (buy low hoping to sell high, motivated by greed) rather than sell on weakness (protecting capital). That's exactly why we get distributions with fat tails in time series of returns in financial markets. Gold isn't any different.

 

[Misthos]

Quote from ammo:

anyone remember beanie babies, i think it's a fad that will turn out very badly for longs

You're comparing the world's oldest form of currency and store of value to beanie babies? How many beanie babies do central banks keep as reserves?

We are experiencing a global sovereign bond crisis. Don't believe me? Then why did the Fed need to monetize 300 billion of Treasuries and also monetize another trillion plus of agency debt, which much of it, IMO, was really "exchanged" for treasuries? And do you think the US, the UK, and Japan are really any different than Greece or Portugal?

Markets - both credit and securities are propped up by governments creating debt. Such a crisis will eventually morph into another crisis - the last crisis - a currency crisis.

What is the ultimate currency that can't be created from nothing?

Gold.

 

[Debaser82]

Quote from makloda:

So what do you do if the market suddenly doesn't agree with what your "4 factor" model is saying? What if it drops 30, 40%, 50% even though all signals scream buy? Buy more? Sell all? Wait and see? Panic?

I assume most "level headed gold investors" look to add on weakness (buy low hoping to sell high, motivated by greed) rather than sell on weakness (protecting capital). That's exactly why we get distributions with fat tails in time series of returns in financial markets. Gold isn't any different.

Greed is a phenomenon not strictly reserved for precious metals investors.

Ask those who had all their money in the Citibanks of the world.

What if the dollar crashes 30% next week? What if they close down the stockmarket?

Each risk should be hedged at least a bit once you have aquired a certain amount of capital.

For gold those hedges are cash and an improving economy hampering the need for capital building or preservation trough speculation.

 

[Debaser82]

I would also like to note I find it rather amusing the likes of Warren Buffet get all the credits for the calls that they have made and the consistent beating of the markets and rightfully so, good for him.

But when it come down to the 10 years in a row winning streak the gold bulls can look back on today it is still encountered with a certain amount of wariness and disbelief.

It just doesnt makes sence for these half nutty end of the world guys and their worthless metal to outperform such a significant part of the financial community.

All those analysts working 24/7 studdying corporate balance sheets getting beaten by a bunch of slackers with a nonsensical mystic belief.

This is unacceptable!

Tell your banker you are considering putting some money in physical gold.

The disdain on his face will tell the whole story.