Doesn't Gold look like a bubble?

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Blackbird's picture
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Doesn't Gold look like a bubble?

Hi,

I am new here and just recently finished watching the 'Crash Course'.  I am Canadian, but recognize that many/most of the issuses mentioned in the 'Crash Course' pertain to Canada as much as the US (let alone, world).  

I looked into gold to buy and then looked at a chart showing its history.  It spiked back in about 1980 from around $200 to about $700, then dropped shortly after to $400 range that held steady(ish) through until around 2005 where it climbed rather rapidly up to where it is today.  

With my limmited knowledge of what a bubble looks like it seems to me that Gold is looking like one.  Am I that wrong?

Cheers,

Blackbird

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Re: Doesn't Gold look like a bubble?

This is what I was afraid of and why I haven't bought any...

but it's just a bet

that is, a bet, that the dollar will not crash and etc...

maybe a poor bet

a bet, nonetheless

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Re: Doesn't Gold look like a bubble?
caroline_culbert wrote:

 

that is, a bet, that the dollar will not crash and etc...

 

Hi Caroline,

Are you really betting that the dollar will not crash? Pure curiosity, especially since when you look at the stats/number the dollar has steadily been loosing value for over 30 years.

As for the gold question, I would honestly say no, there is not real bubble here, only because of the ratio between debt, and gold as well as the dollar depreciating in value(as well as silver....personally I am a fan of silver).  With that said, I'm holding for a rally in the market before I buy more (gold). I'm finding I agree with Mike Pilat (I'm sorry if I got that wrong) on many of his postings. We are mearly blowing (or attempting) to blow up another bubble here which is gonna be major trouble all tings considered (oil, water, social security/medicare/medicaid, ect...). Having a position in PM will really help, after all, it is the only true, real money.

Mike

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Re: Doesn't Gold look like a bubble?

Considering the totality of economic activity surrounding the move by gold over the last few years is unprecedented, I think previously trusted models should be questioned. What I mean is this: If the economy had more or less been humming along all systems go for the past four years and gold's movement had been the same as it has been, then I'd say it would be a more likely candidate for a traditional bubble. But I think the activity in gold is a direct response to the unprecedented nature of other events. Events that I think are unlikely to "normalize" and drag gold back down. I think we're in the early stages of a permanent economic shift, one that will think very highly of the "value" of gold.

But don't forget silver. Silver's a far better bet I think than gold. Most people by no real fault of their own tend to be too gold-centric.

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Re: Doesn't Gold look like a bubble?
mainecooncat wrote:

.

But don't forget silver. Silver's a far better bet I think than gold. Most people by no real fault of their own tend to be too gold-centric.

 

Amen brother....Silver has awesome potential, and is affordable (for now).... =)

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Re: Doesn't Gold look like a bubble?
that1guy wrote:
caroline_culbert wrote:

 

that is, a bet, that the dollar will not crash and etc...

 

Hi Caroline,

Are you really betting that the dollar will not crash? Pure curiosity, especially since when you look at the stats/number the dollar has steadily been loosing value for over 30 years.

As for the gold question, I would honestly say no, there is not real bubble here, only because of the ratio between debt, and gold as well as the dollar depreciating in value(as well as silver....personally I am a fan of silver).  With that said, I'm holding for a rally in the market before I buy more (gold). I'm finding I agree with Mike Pilat (I'm sorry if I got that wrong) on many of his postings. We are mearly blowing (or attempting) to blow up another bubble here which is gonna be major trouble all tings considered (oil, water, social security/medicare/medicaid, ect...). Having a position in PM will really help, after all, it is the only true, real money.

Mike

Well my husband's grandfather had a shi*load of gold/silver hidden under his house and doesn't seem as if it helped him any... the family cashed in after he died because they had no idea what to do with that much metal.

Seriously... I really don't know-- it's just a bet b/c, frankly, I don't really care anymore.  I know that doesn't sound good but sometimes (more often now) I just don't care.

 

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Re: Doesn't Gold look like a bubble?

I see. Well, People must remember that Gold/Silver, in its physical form more than others, is a defencive investment. It is a way to preserve your wealth over time.....1 ounce of gold 100 years ago would buy you the same amount of goods as 1 ounce of gold now.

I apologize if my question came across wrong, I was just curious.

Mike

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Re: Doesn't Gold look like a bubble?
that1guy wrote:

I see. Well, People must remember that Gold/Silver, in its physical form more than others, is a defencive investment. It is a way to preserve your wealth over time.....1 ounce of gold 100 years ago would buy you the same amount of goods as 1 ounce of gold now.

I apologize if my question came across wrong, I was just curious.

Mike

Oh my gosh!  What are you sorry about!!! Don't be sorry! ... I'm just borderline on the issue and I can't seem to be swayed either way and it's just kind of like... ?????  My brain has died for the moment... sorry.  No worries... S'all good. Cool

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Re: Doesn't Gold look like a bubble?

Bubbles pop when people can no longer afford for the price to go up any more. For example housing; when they couldn't keep the bubble inflated they lowered the lending requirements so more people could buy homes that they couldn't really afford by offering low teaser rates and qualifying income requirements by hearsay.

Gold has a built in dampener in that every time it goes up significantly, many people seize the opportunity to sell off some gold in the market or as scrap. The scrap sector is much larger than most people realize as it traditionally represents over 25% of the total annual gold supply - and it was up to over 30% last year. When the price of gold drops enough, people begin to build up their holdings again.

This is why it is called a speculative investment. My wife and I have sold off a some of our gold holdings twice in the past six months - each time we re-enter the market when the price drops again. While you may buy and hold gold; as we do with over 50% of our gold and silver, it is also good to trade some periodically as the market invites you to do so.

We probably hold a higher percentage of precious metals (don't forget silver!) than many would be comfortable with but to be honest, what else do you feel safer with?

The stock market (Dow) is now valued at 1997 levels - which effectively means that all gains since then have been eliminated. If you invested $10,000 in 1997, you would have around $10,000 today. If you bought after 1997, you most likely have lost money. Ten years ago gold sold for around $290/ounce which means that it has more than tripled in price, a $10,000 purchase of gold ten years ago would be worth over $30,000 today.

Compared to the stock market, in the last 30 days gold has done 8% better, in the last 60 days gold has done 31% better and in the last 6 months gold has done 52% better. And gold has done better in the long term; in the last year gold has done 41% better, in the last 5 years it has done 260% better and in the last 10 years gold has done 350% better.

Larry

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Re: Doesn't Gold look like a bubble?

Hello BlackBird:

I can't think of anything that will make the dollar stronger, other than other currencies tanking and people moving from say the Euro or the Zloty to it. I would think as they do that a percentage will move to PMs.

Having said that, short of Bernanke figureing out how to turn lead into gold like he turns air into dollars I'm pretty convinced the dollar will be debased and redenominated like every other Fiat currency has been. 

When? Who knows. I don't. But bubble? No, here are the seven things that you have to have to have a bubble. I see one and 2 but not 3-7.

http://www.pacificviews.org/weblog/archives/003679.html

Stage One – Displacement

Every financial crisis starts with a disturbance. It might be the invention of a new technology, such as the internet. It could be a shift in economic policy. For example, interest rates might be reduced unexpectedly. Whatever it is, the world changes for one sector of the economy. People see the sector differently.

Stage Two – Prices start to increase

Following the displacement, prices in the displaced sector start to rise. Initially, the price increase is barely noticed. Usually, these higher prices reflect some underlying improvement in fundamentals. As the price increases gain momentum, people start to notice.

Stage three – Easy Credit

Increasing prices are not enough for a bubble. Every financial crisis needs rocket fuel and there is only one thing that this rocket burns - cheap credit. Without it, there can be no speculation. Without it, the consequences of the displacement peter out and the sector returns to normal.When a bubble starts, the market is invaded by outsiders. Without cheap credit, the outsiders can’t join in.

Cheap credit is the entrance ticket for outsiders. For example, gas prices have risen sharply in recent years. However, banks aren’t giving out loans so that people can store gas in their garages in the hope that the price will double in three months. The banks, however, are prepared to give loans to people with poor credit to hold condos in the hope that they can be quickly flipped.

The rise in easy credit is also often associated with financial innovation. Often, a new type of financial instrument is developed that miss-prices risk. Indeed, easy credit and financial innovation is a dangerous cocktail. The South-Sea Bubble started life as new-fangled legal innovation called the limited liability joint stock company. In 1929, stock prices were propelled into the stratosphere with the help of margin calls. Housing prices today accelerated as interest-only mortgages emerged as a viable means for financing overpriced real estate purchases.

Stage Four – Over-trading

As the effects of easy credit kicks in, the market starts to overtrade. Overtrading stimulates volumes and shortages emerge. Prices start to accelerate, and easy profits are made. More outsiders are attracted, and prices run out of control. Accelerating prices attract the foolish, greedy and the desperate to enter the market. As a fire needs more fuel, a bubble needs more outsiders.

Stage five – Euphoria

The bubble now enters its most tragic stage. Some wise voices will stand up and say that the bubble can no longer continue. They put together convincing arguments based upon long run fundamentals and sound economic logic. However, these arguments evaporate in the heat of the one over-riding fact – the price is still rising. The wise are shouted down by charlatans, who justify insane prices by the euphoric claim that the world is different and this new world means higher prices.

Of course, the “new world” claim is true; the world is different every day, but that doesn’t mean that prices run out of control. The charlatan wins the day and unjustified optimism takes over. At this point, the charlatans bolster their optimism with the cruelest of all lies; when prices finally reach their new long run level, there will be a “soft landing”. The idea of a gentle deceleration of prices calms the nerves.The outsiders are trapped in knowing denial. They know that prices can’t keep rising forever, but they rarely act on that knowledge. Everything is safe so long as they quit one day before the bubble bursts.Those that did not enter the market are stuck in a terrible dilemma. They can not enter but neither can they stay out. They know that they have missed the beginning of the bubble. They are bombarded daily with stories of easy riches and friends making massive profits. The strong stay out and reconcile themselves to the missed opportunity. The weak enter the fire and are damned.

Stage Six - Insider profit taking

Everyone wants to believe in a new brighter future but a bubble takes that desire and turns it upside down. A bubble demands that everyone believes in a brighter future, and so long as this euphoria continues, the bubble is sustained.However, as madness takes hold of the outsiders, the insiders remember the old world. They lose their faith and start to panic. They understand their market, and they know that it has all gone too far. Insiders start to cash out. Typically, the insiders try to sneak away unnoticed, and sometimes they get away with it. Other times, the outsiders see them as they leave. Whether the outsiders see them leave or not, insider profit taking signals the beginning of the end.

Stage seven - Revulsion

Sometimes, panic of the insiders infects the outsiders. Other times, it is the end of cheap credit or some unanticipated piece of news. But whatever may be, euphoria is replaced with revulsion. The building is on fire and everyone starts to run for the door. Outsiders start to sell, but there are no buyers. Panic sets in; prices start to tumble downwards, credit dries up, and losses start to accumulate.

Here is the paradox of all bubbles – everyone knows how the fatal combination of easy credit, overtrading and euphoria will affect prices. Minsky didn’t need to write down a thing about the madness of speculation. America’s investors have a lifetime of experience. Within the space of five years, America moved from the tech stock bubble into the real estate bubble.Today’s housing prices are grossly overvalued. Everyone knows that prices will collapse. It might be tomorrow, or it might be two years from now. One thing, however is certain, the longer it takes for the bubble to burst, the more painful it will be. 

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Re: Doesn't Gold look like a bubble?
Davos wrote:

One thing, however is certain, the longer it takes for the bubble to burst, the more painful it will be. 

Kind of like a pimple?  Geez.. why is it so hard for me to just jump off the fence?

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Re: Doesn't Gold look like a bubble?

Blackbird,

Haven't I read in several places that the United States Federal Reserve confiscated everyone's gold in 1931? In view of this, I would not buy more gold here in the UK, and would be similarly reluctant in Canada.

 Regards

James

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Re: Doesn't Gold look like a bubble?

I don't think gold is in a bubble, but I also wouldn't be surprised if it went back to $700-$800 before rising back well over $1,000. 

My reasoning is this:  we are in a deflationary environment for the moment.  Almost all prices are down relative to last year (or even 6 months ago).  Simply put, dollars today are worth more than dollars 6 months ago.  The US savings rate is not only positive for one of the only times in 20 years, it's actually up to 5%!  That means people aren't spending (which I'm sure is not news to anyone not living under a rock), but more importantly, it means there is less money trading hands, chasing goods.  Traditionally, deflation works against gold just like it works against anything else. 

However, the government's debasement of the currency will eventually come back to haunt us all, with a vengeance.   How is it that they've pumpued the greatest amoun tof newly created money in history into the system without any inflation taking place yet?  I'll let someone else answer that.  All I know is you cannot put the toothpaste back in the tube, and when inflation returns, it's going to get really ugly.  

 

 

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Re: Doesn't Gold look like a bubble?

Gold was confiscated in 1933. We were on a quasi gold standard then. It also was a way for FDR to devalue the dollar by like 60%, so more dollars meant less debt.

Silver was not taken.

Greenspan on gold in the 1960s (he recently autograhped this article for Ron Paul and told him he still beilieves in what he wrote then) http://www.scribd.com/doc/192230/GOLD-AND-ECONOMIC-FREEDOM-Alan-Greenspan

FDR's siezure PDF: http://www.wellsfargonevadagold.com/confiscation-order.pdf 

And indepth from Brooklyn law prof. http://users.rcn.com/mgfree/Economics/goldHistory.html

Unless we go to a gold standard again I wouln'd't worry too much about it. I think that they'd do this only if they were dragged kicking and screaming (i.e. the countries with the gas said no cash gold or nothing---and I think they'd pay with bombs not gold even then).


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Re: Doesn't Gold look like a bubble?
mainecooncat wrote:

don't forget silver. Silver's a far better bet I think than gold. Most people by no real fault of their own tend to be too gold-centric.

 MCC, I've seen this said before on this site and it always puzzled me. *Why* is silver a much better bet? the reason I haven't bought any is the markup I see on it at the site where I buy gold is double the gold markup -- 11 percent markup vs. 5 percent. Do you just think silver is somehow undervalued compared to gold?

 

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Re: Doesn't Gold look like a bubble?

A good site to read daily is:

jsmineset.com

 

Jim Sinclair and his team are bullish gold and have been since Y2K.  For example, today's article starts out with a question from a reader:

Some say the biggest gold short or manipulator in the world is none other than the Federal Reserve. The Fed is not part of the government and is not really a reserve. It simply is a subcontractor for monetary policy in the United States. Can you please tell us why the Fed will ultimately fail in suppressing gold and for that matter silver? Just to get your creative juices flowing here is a little exchange the took place in Congress recently between Fed Chief Ben Bernanke and US Senator Bernie Sanders from Vermont.

“’My question to you is, will you tell the American people to whom you lent $2.2 trillion of their dollars? Sanders asked, referring to the size of the Fed’s balance sheet.
…The central bank chairman replied,"NO."
Bernanke said the Fed’s lending programs were not gifts or subsidies but rather over-collateralized loans.
"We have never lost a penny doing it," he said."
–U.S. Senator Bernie Sanders (I – VT) and Fed Chairman Ben Bernanke (Reuters, March 3, 2009)

Senator Sanders is introducing legislation demanding the Federal Reserve disclose who it is giving taxpayer dollars to. I, as many, appreciate all you do to protect wealth.

If you want some good insight and analysis of the gold markets, I would read this site on a regular basis.

 

 

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Re: Doesn't Gold look like a bubble?

Thanks Davos, for the silver link. I wish theinterviewer would have let the author talk about the history of silver and its value. I'm going to have to poke around his site a bit and see if I can find more on that...

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Re: Doesn't Gold look like a bubble?

Hi Sue (and all)

I dont have much time right this second, but silver historically has been valued at roughly 12-15/1 with gold. From my readings primarily based on the fact (back then) that there was 12-15 times more silver around than gold...this is not the case now.

Silver last I checked was roughly 65/1, still grossly undervalued, especially when you consider the fact that it is used industrially as well as real money. There is also only a fraction of silver mined right now compared to say 1980 (around 90% less, someone feel free to put closer stats up for now....Ill do it later tonight if no one else gets a chance.)

What else would you like to know sue?

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Re: Doesn't Gold look like a bubble?

Hi all,

     A good book to read on the subject of Gold and Silver is from Kiyosaki's Rich Dad Advisor series- "Guide to Investing in Gold and Silver".  Its a fast and easy read and gives a really good overview on the history, why to buy and how to buy.  Silver is shown to have much more upside potential than Gold in a hyperinflationary economy.  For what its worth, it seems that Kiyosaki (Rich Dad) has been investing in Gold and Silver for some time as he too believes that cash will soon be trash.

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Re: Doesn't Gold look like a bubble?

You really believe that load of crap?  Oh yeah, Mr. Use-super-leverage-to-buy-real-estate-but-didn't-forsee-the-bubble-bursting" now claims he was completely precient on gold back when it was cheaper.  Let's see some reciepts, confirmations or statements. 

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Re: Doesn't Gold look like a bubble?
Kman wrote:

Hi all,

     A good book to read on the subject of Gold and Silver is from Kiyosaki's Rich Dad Advisor series- "Guide to Investing in Gold and Silver".  Its a fast and easy read and gives a really good overview on the history, why to buy and how to buy.  Silver is shown to have much more upside potential than Gold in a hyperinflationary economy.  For what its worth, it seems that Kiyosaki (Rich Dad) has been investing in Gold and Silver for some time as he too believes that cash will soon be trash.

 

You are absolutely right, this is a great book, with a lot of history on the subject which I feel is important...this is one of the first books I have read

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Re: Doesn't Gold look like a bubble?
plantguy90 wrote:

You really believe that load of crap?  Oh yeah, Mr. Use-super-leverage-to-buy-real-estate-but-didn't-forsee-the-bubble-bursting" now claims he was completely precient on gold back when it was cheaper.  Let's see some reciepts, confirmations or statements. 

 

Kyosaki did not write the book. Mike Maloney did

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Re: Doesn't Gold look like a bubble?

All I said was Kiyosaki's recent claim he bought gold and silver when it was cheaper is a lot of baloney.  Saw it on his Yahoo column -

"I believe that gold and silver are good investments -- but their prices are at all-time highs, which means it is time to be cautious, not foolish. Today, I hear financial experts on television advising people to buy gold. These are the same guys who were recommending stocks and mutual funds less than two years ago. So be very careful as the gold and silver markets begin their next climb. I am still buying gold and silver but I did most of my buying when gold was at $300 an ounce in 2000 and 2001."

The last part of the last line smells like baloney to me.  Who knows? 

 

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Re: Doesn't Gold look like a bubble?

My first exposure to Gold and Silver was in 2005 as Kiyosaki recommended it at that time, so I believe that Kiyoaski has been in for a while.  I didn't understand the why, until recently when I read the book by his advisor Maloney (very recent book).  Then it all made sense.  I commend Maloney for his material, especially as after reading his book, I visited his website and guess what was promoted front and center--> The Crash Course!  So, for me, its because of that book that I learned about Martenson.  Regardless of one's opinions about Kiyosaki, its a good book worth the time to read.

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Re: Doesn't Gold look like a bubble?

I read the book in October right when the dow was crashing 700 points a day, and the book does an excellent job of explaining what is happening.  I too found the crash course on his sight, and I am a big fan of his writings. 

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Re: Doesn't Gold look like a bubble?

T1Guy, thanks for that overview and thanks for the book recc, Kman, that several of you echoed. I'll check it out through the library if I can get it. (Anyone else find themselves wanting to buy reference books left right and center these days? I'm trying to find what I can at the library so I can stock up on more toilet paper and rice, lol)

"From my readings primarily based on the fact (back then) that there was 12-15 times more silver around than gold...this is not the case now. "   what's the ratio of silver in existence to gold these days?

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Re: Doesn't Gold look like a bubble?

No problem. I am in the same boat. Since July I have read 11-12 books (haven't counted in a while, but know it is in double digits). I am about 50 pages away from finishing When Giants Fall, then will start another...its like crack, lol.

Well, as an example, all gold in existence in 1980 (let alone 100 years ago) is still in existence today. Using 1980 as the example year, there was something like 3.2billion ounces in existence (mined). now it sits at something crazy like 500million (that number may be abit off either direction, but besides the point). If I pull out the book referenced it shows a graph there too, it is amazing. the 2.5billion ounce difference was used up in electronics and what not.

 

mike

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Re: Doesn't Gold look like a bubble?

If you want some good online video stuff until you get the book, try the resources at www.goldsilver.com  <--wrote the book we talked about

www.silver-investor.com  <-- david morgans site, parts require a subscription, but still worth the info either way

http://bullion.nwtmint.com  <--GREAT prices on silver, minimum orders of 50oz though, but worth it. I personally go in on a purchase with 1 or 2 others (that i trust) to get a minimum of 100oz to order (even better price, about $1.20 above spot). I al so track spot prices here for the purpose of ordering on dips when possible. This site also has some awesome resource too like the London Bullion report and access to the gold report  ( www.theaureport.com )

If you are interested in gold at all www.apmex.com has better prices than NWT, but not by a lot. NWT just has minimum 5oz order which I personally cant afford that much at once.

This should be an awesome start for you I hope....

Mike

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Re: Doesn't Gold look like a bubble?

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?

Now an ounce of gold buys 900 loves of bread.

That says to me it is about 100% over-valued. We'd have to see a 250% loss in $ purchasing power for gold at $900 to return to that historical norm. Is the market pricing in this kind of inflation?

I'd say gold is a bubble, especially since $ purchasing power is increasing right now. 

 

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Re: Doesn't Gold look like a bubble?
scepticus wrote:

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?

 

 

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

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