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Doesn’t Gold look like a bubble?

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  • Wed, Mar 11, 2009 - 11:50am

    #31
    Peak Prosperity Admin

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    Re: Doesn’t Gold look like a bubble?

[quote=scepticus]

Look at gold relative to the price of bread – it has held stable at about 350 loaves for millennia.

Currently gold is $900 or thereabouts. How much is a loaf of bread? $1?

 

 

[/quote]

I would be willing to say that aside from sales the average price I pay for bread is 2-2.50…if this is truly the median price you want to use, and I shop on base in England. If you divide that by 900 it hits within your 350 ( in-between 350-450)

You are going to want a broader average of items to base against gold being a bubble or not. Although I am not a technical investor the many newsgroups I read have the support pegged at 880, and then 850 (which is the 100MA if i remember right). Is there a possibility of it going below that? Sure there is, but I would look at it as an opportunity, especially with everything coming down the pike.

Don’t get me wrong here, personally I am more of a silver fan, but I would not consider gold to be a bubble right now.

Mike

  • Wed, Mar 11, 2009 - 12:13pm

    #32
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    Re: Doesn’t Gold look like a bubble?

"I would be willing to say that aside from sales the average price I pay for bread is 2-2.50…"

I am english, and I pay about 80 pence a loaf.  If you are paying over 2$ on a US base in the UK you are getting stiffed.

Gold in £ is about 650 now, and a loaf under £1. Gold is either over-valued by about 100% against long term average, or the market has priced in a further 50% depreciation of fiat buying power. 

A 50% depreciation is huge BTW. How much depreciation of the $ would be needed to monetise the US national debt? Anyone know?

 

 

 

 

  • Wed, Mar 11, 2009 - 12:34pm

    #33
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    Re: Doesn’t Gold look like a bubble?

Alot would have to be monotized. We are currently sitting at 40billion shy of 11trillion dollars, and on track to hit 15+ in the next few years.

Also, thats great that your paying 80p, (still about 1.20, but i see what your trying to say). The moment the dollar goes back to the value before things got crazy and that 80p would be equal to a about 1.70. There are a few variables to put in there, Im just Trying to point out how far the dollar will devalue…..the way I see it the dollar will have to devalue a lot further then what it was to make up for the multiple trillions of debt we are racking up right now. You can also use the price payed for petrol (gas) here in england. I pay an average of 59cents a liter on the base. Off it is between 89 and 99p where I am at. That is roughly triple. Now compare that to gold as well. All I am getting at here is the price of bread alone is not enough to conclude a bubble…

Then, if and when the world eventually comes off a dollar standard it will plummet even further…(more like when…)

  • Wed, Mar 11, 2009 - 01:13pm

    #34
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    Re: Doesn’t Gold look like a bubble?

I hear what you are saying about valuing gold against a wider basket of commodities, however it could just be that fuel at 89 pence a gallon continues to be over-valued, especially as demand falls. Anyway most of that 89pence is tax, so it’s difficult to know for sure.

I think while nasty inflation could be on the cards years down the road, ‘nasty’ only counts as say 50-100%. A very high value (say above $1500) for gold in the short term only make sense if this nasty inflation is IMMINENT. Further, high inflation will dampen demand for fuel but not bread.

I know inflationists are in the majority here so all I would say to someone asking about gold bubbles is to become familiar with the deflationist counter-arguments from people like Steve Keen and Mike Shedlock. Until you get both sides of the story, it is impossible to make a rational decision about gold. 

The other reason to hold gold is to hedge against that ‘worldwide credit event’ such as a sudden bond market crash precipitated by multiple too-big-to-fail bank bankruptcies. This is a definite, even imminent possibility and would certainly result in a sudden rush to gold but I’m not sure whether such an event would be inherently inflationary – it could just as well be deflationary. In any case timing is of the essence here so unless you hold paper gold it would be almost impossible to get the timing right, since money might move out of gold after such an event as quickly as it moved in.

  • Wed, Mar 11, 2009 - 01:31pm

    #35
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    Re: Doesn’t Gold look like a bubble?

[quote=scepticus]  

The other reason to hold gold is to hedge against that ‘worldwide credit event’ such as a sudden bond market crash precipitated by multiple too-big-to-fail bank bankruptcies. This is a definite, even imminent possibility and would certainly result in a sudden rush to gold but I’m not sure whether such an event would be inherently inflationary – it could just as well be deflationary. In any case timing is of the essence here so unless you hold paper gold it would be almost impossible to get the timing right, since money might move out of gold after such an event as quickly as it moved in.

[/quote]

I completly agree there. I have alwayas looked at PM’s (gold/silver) as a defencive investment. Silver does have a higher upside possability, but I still view it as a defencive investment as well. Personally I don’t get into them with the intent on making a fortune, as much as preserving ones wealth….

mike

  • Wed, Mar 11, 2009 - 01:43pm

    #36
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    Re: Doesn’t Gold look like a bubble?

Question:  I’m thinking of rolling over all or part of a current IRA into a precious metals IRA through APMEX.  Do any of you have experience with this?  Any advice?

  • Wed, Mar 11, 2009 - 01:43pm

    #37
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    Re: Doesn’t Gold look like a bubble?

"Personally I don’t get into them with the intent on making a fortune, as much as preserving ones wealth…."

 Agreed. However if there is bubble behaviour going on in gold it could damage one’s wealth instead of preserving it, especially if one enters at the top of a bubble and subsequent inflationary events are not as bad as some expect. I do hold some gold but holding it make’s me very nervous for exactly the reasons outlined in this thread. 

Personally I’m inclined to hedge long term gold holdings against other assets such as property, farmland and perhaps some other commodities. Oil is cheap now, gold is relatively expensive. Is oil therefore a good hedge for the time being against gold held in long term retirement portfolios? In any case, everyone can hedge  by keeping a sizable (relative to gold holdings) fiat cash reserve in a few currencies.

I wonder whether all those collecting golden eagles have also considered that adding some swiss francs, yuan and euros to the stash (in actual notes) might be a wise move?

  • Wed, Mar 11, 2009 - 02:53pm

    #38
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    Re: Doesn’t Gold look like a bubble?

[quote=scepticus]

"I would be willing to say that aside from sales the average price I pay for bread is 2-2.50…"

I am english, and I pay about 80 pence a loaf.  If you are paying over 2$ on a US base in the UK you are getting stiffed.

[/quote]

The price of bread, and most other food items, is artificially low and has been for some time because of subsidies and the availability of cheap fossil fuel for farming, processing and distribution.

When that oil gets more scarce and more expensive, the price of bread is going to go up.  You have to consider both ends of the equation.

  • Wed, Mar 11, 2009 - 03:37pm

    #39
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    Re: Doesn’t Gold look like a bubble?

I agree food prices are are likely to go up sharply in the future, although for now that may just mean they avoid the deflationary forces pulling down other prices like oil, consumer goods etc.

The price of bread can double before returning to historical levels wrt current gold prices. Similarly for many other foodstuffs. A doubling in $ price in a deflationary environment equates to more than doubling in real terms.

Also your argument is based on oil prices increasing, in which case owning oil might make more sense than gold, if you wish to protect against rising food prices. Currently the world is awash with unwanted oil. While this situation will pass in time, it could be a long long time before it does. Further, there is reason to suspect that maybe food production subsidies will increase with protectionsim rather than decrease.

My point is, all these arguments for gold are at best very circumstantial and subject to huge future uncertainty. Accordingly, it is not unreasonable to suspect a gold bubble is underway. 

It is important I think to distinguish between the case for holding gold as an inflation/debasement hedge and as an uncertainy hedge. As an inflation hedge, there is already a lot of inflation priced into gold today, even while we have a deflationary reality. The uncertainty argument still makes a lot of sense but exhibits itself as gold price volatility rather than a secular trend I think. I’m not sure how you can play the latter trend without risking some eye watering losses.

 

  • Wed, Mar 11, 2009 - 03:39pm

    #40
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    Re: Doesn’t Gold look like a bubble?

[quote=Doug]

Question:  I’m thinking of rolling over all or part of a current IRA into a precious metals IRA through APMEX.  Do any of you have experience with this?  Any advice?

[/quote]

 

I do some purchases through APMEX, but never did any IRA items with them. Depending on what you want to do, and weather or not your looking for gold or silver you may want to look into Northwest Territorial Mint though. I know they do stuff with IRA’s too.

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