Gold still nowhere near the mania stage for investment
Posted on 22 December 2010 with 2 comments from readers
One of the clearest reasons that ArabianMoney can offer for investment in gold is that the price has been going up for a decade but still shows no sign of the classic spike or mania stage. For almost always the top of a price trend is marked by a spike.
We warned in the last issue of the ArabianMoney newsletter (click here to subscribe) that the silver price since August did have the appearance of a spike. However, there has been nothing similar in the gold price.
George Soros
Earlier this year George Soros raised a few eyebrows with his comment that ‘The ultimate asset bubble is gold’. We pointed out at the time that Soros was talking about the future and not the present, although some still misunderstood this comment (click here).
Last month he told the Canadian International Council in Toronto: ‘It’s all a question of where are you in that bubble… The current conditions of actual deflationary pressures and fear of inflation is pretty ideal for gold to rise’.
As our friends at the Five Minute Forecast note today: ‘Many of Soros’ fellow hedgies — John Paulson, David Einhorn, Paul Tudor Jones, just off the top of our heads — have piled into gold’.
But they are still a small minority in the investment community. Bond flow inflows of $240 billion this year dwarf the $60 billion held in gold ETFs, and only 40 per cent of gold production is allocated to investment.
Mania stage
How long will it be before the man-in-the-street actually gets gold? It is a slow but inexorable process. The installation of gold ATMs around the world is a sign but we need to see a network of a thousand gold vending machines not a few novelty installations.
But the big changes are already happening in financial markets with bond prices in retreat and interest rates rising. Soros is right the fear of inflation is there, and the reality for many assets is going to be falling prices or deflation. After all rising interest rates make ownership more expensive and push asset prices down.
For the real mania you have to imagine the $240 billion allocated to bonds this year by investors trying to squeeze into a $60 billion gold ETF market. That is when you will see the real gold price spike and silver will most likely shoot even higher.
2 Comments posted by readers:
A worthwhile commentary, Peter!
I find it fascinating when supposedly educated analysts claim that gold is in a bubble, and I wonder what planet they’re living on!
There are tens of millions of folks in countries around the world (US, China, Japan, EURO countries, middle eastern countries, etc.) who can afford to allocate a portion of their savings to physical gold, but who don’t own any. Interestingly, here in the US, only a few percent of Americans own any physical gold or silver, although many are now rapidly learning “what-real-money-truly-is”, and are starting to buy the physical version of precious metals (vs. the ETFs, which represent fake gold and silver).
GOLD is UNDERVALUED against SILVER PRICE . And Gold should be at least now between $3,000 to 5,000/oz.
He,he SILVER $320/OZ ? Maybe in year of 2030.
Oh yeah, like Oil price in July/2008, oil demand is high and oil supply is very limited? Let’s say that Canada and USA only have Oil Sands to cover all demand in the world for next 200 years but production cost is too,too high between $70 to $100/per barrel.
I AGREE THAT GOLD IS “GOLD” AND IS VERY LIMMITED PRODUCTION AND RARE METAL BUT SILVER IS OVER,OVER VALUED AND CHEAP METAL and many of World Mines can increase production at least 10% very quickly, and we can see for next 5 years even 50% inreased production of Silver if “DEMAND” or price is about $320. With Gold is opposite and Supply is very,very limmited.
So next two years will see about 10% increase of production of Silver and Silver is alredy in bubble teritory because Gold production cost is $450-$700/oz or avg. ratio 1: 2.5,
and Silver avg.ratio is 1:7.5 production cost.
Avg. Production cost of Silver in the world is between $3-$5/oz.
I’m waiting for USA,Canada to increase production like 2002 for additional 640 metric Tones of Silver and many European minies from Bulgaria,Poland,Russia,Greece,Sweden,Kazahstan to
increase production about additional 800 metric tones in 2011,2012.
PLUS possible INCREASE of productions in Australia,Japan,Moroco,India,S.Africa etc. for additional 1,000 metric tones of Silver.
He,he SILVER $320/OZ is possible only if $US will be replaced with new world currency AND will going back again to monetary golden standards.
Than gold should be $55,000 to $60,000/oz. JP Morgan has currently short possitions of Silver and they are selling the contracts to stupid hedge funds.
Well maybe will see pressure till January/Feb. 2011 BUT the game is over for Silver in 2011,2012.
When China,Mongolia production cost is $3/oz, and many latinos mines production cost is $4/oz and USA,Europe,Canada about $5/oz, than WHO is so STUPID to pay almost 70 to 100 times more than production price($320/oz). Oh yeah High demand,well the last 2 weeks demand is much,much weaker and will see in 2011,2012.
“For the real mania you have to imagine the $240 billion allocated to bonds this year by investors trying to squeeze into a $60 billion gold ETF market”.
“CAN YOU IMAGINE that $250 billion were wiped out just within 20 minutes at MAY/06th/2010 on stock market crash on DOW JONES stock market.
Or could you IMAGINE that within 5 months in 2008, OIL price had slammed 75% down, from $147 to $32/ barrel?