Everything can and will form bubbles, including gold

First of all, in about 1981 (not sure exactly when), gold was, in REAL value (i.e. inflation adjusted), like $2,000 USD. It dropped to like $200 (one-TENTH the original value) a few years later.

Second of all, it's impossible for the price of anything to go up infinitely because eventually, people won't be able to afford to buy it anymore. When too few people wanna buy something, it's price is gonna come down.

This is retarded to even talk about. It's as obvious as 2+2=4. It's annoying as mother(*)(*)(*)(*) that people even debate this (*)(*)(*)(*).

 

Your looking at gold as an asset and not as a currency. In 1980 if everybody who had dollars could go to the treasury and purchase Gold at $800 an ounce in the end all the dollars would be at the treasury and there would still be Gold.
Big difference now.

Interest rates are around 0 and the money supply is increasing.

 

Exactly.

As long as this continues, gold/silver should generally go up.

 

but if and when a bubble in gold forms you have to look at what makes a bubble burst......its always the same thing.....high interest rates.

1) high interest rates is what burst the stock market bubble in the roaring 20's
2) high interest rates is what burst the commodities boom in the 70's ( 1981 actually)
3) high interest rates are what killed the dot.com bubble in 1999
4) high interest rates killed the housing bubble in 2007


So you see....it helps to know what you are talking about LOL

Bernacke for the time being has no intention of raising interest rates!

 

all bubbles throughout history ended the same way...with high interest rates!

 

Ok. Could it also ultimately be that nothing has infinite value?

 

everything has a percieved value...its market driven.....that includes everything including paper money with one important defference......paper money is solely based on trust.....so if ever that trust goes.....the paper becomes worthless.

Think of it like these high teck stocks like google...if even one quarter they dissappoint the stock can lose half its value rather quickly....not so with a company with real value like lets say coke. Since there is nothing but trust and expectations behind the value...its very vulnerable to collapse if there is any bad news on the horizon.

And this is what makes gold and silver different

 

The tech bubble in 2000? My recollection was:

1. Demand far outpaced supply. Duplicate orders were placed, orders used to secure loans to grow capacity.

2. As products were developed, and started rolling off the production line, duplicate orders were cancelled.

3. All the companies that based their manufacturing capacity on Sales forecasts (based on those duplicate orders), had all their cash, and credit, tied up, and had to lower prices (a lot) to maintain any market share.

4. Those that couldn't survive on lower costs, failed.

A great example of "The Beer Game".

Don't remember anything about interest rates.

 

Ok. Well, expectations is what drives the bubbles for a lot of things. Including gold. But gold and silver are not fundamentally different than any other thing that physically is easily transported, lasts a long time and has intrinsic value.

 

You are essentially debating it with yourself .
Nobody of any consequence has ever even thought that Gold , as an example , would rise infinitely .
Therefore it is odd that you choose to remind us about the tricky relationship between two twos and four .
Of course , in any finite period any substance has intrinsic value if those that deal in it choose --by their behaviour ---to believe it has .
The fact that at some future point , their cherished belief proves to be a disappointment , is grist for those who profit from the mistakes of others .
In conclusion , I say to anybody wishing to define "infinity 'in a pragmatic way ( say , the next three or four years ) , Gold and Silver prices will give a (*)(*)(*)(*) fine imitation of trying to increase by an infinite amount .

 

in 1999 interst rates hit 10% I bellieve or close to that...and more importantly there was a yield inversion where short term rates were higher than long term rates. This almost always leads to a recession!

 

gold will only go up enough to mirror the expanding money supply....as soon as the money printing stops so too does the rise in gold!

 

My thought is confidence will erode. Fiat currencies will be seen as what they are, a promise to pay. Sometime this decade we will be forced to stabilize our economic system. I believe this will be through Gold, and quite possibly it will be a new global currency, possibly the SDR. That is tough to tell. But Gold will be part of the equation.

On the way up this will be violent with lots of chop.

I personally believe gold is returning to the throne. If Gold is at $5K or 10K or whatever K and becomes backing to a currency, that will be the new price of Gold. When that price is set it won't go down.

That is just my opinion.

 

Don't forget the effects of continuing currency devaluation , unrelated to ongoing money supply , pushing the price higher ; plus inflation , turning perhaps to hyper inflation , for a year or two .
The Gold price will feast in these conditions .
And when matters get really bad , equities will take a terrible beating after initially rising to counteract both of those devaluation and inflation factors .
Near the end of the death dance , very few equities will be held because non cash and non currency items will be seen as the safe harbour of value -- commodities again .

 

Link?

This shows a 1.75% bump in prime rate, from 7.75 to 9.50 in the mid 2000's:

http://research.stlouisfed.org/fred2/data/MPRIME.txt

But, cancelling double booked orders would not have been tempered by a steady interest rate. Actually, it was far worse than double booking.

The phone company would request a quote for 1 million, DSL modems, from 5 different companies - each saw an opportunity for 1M. Those 5 companies would go to the same 5 suppliers for their parts - these companies saw an opportunity of 5M (1M from each of their customers). The suppliers would go the same 5 companies for their parts, those companies saw a 25M piece opportunity.

The further down the food chain, the more that 1 million piece opportunity grew. Many companies increased their capacity based on their request for quotes.

Just before the tech crash, the core for a DSL tranformer sold for $0.26 - after, the surviving companies sold them for $0.06.

The modems that sold for over $100 in volume, can be bought for less than $40 at Fry's.

 

Gold is effected by supply and demand. If it's real value is $1000 in fiat currency for 1 oz, and you have 10 people bidding on it, the selling price will go above $1000. Add a little fear of hyper inflation, and a track record of increasing prices....

It looks like the housing market during the bubble.

If gold is a hedge against inflation, that it ougth to track gasoline and new Japanese cars. If it is going up faster, it is a bubble.

 

think about what you just said here. During the housing bubble ( or any bubble) there is always a frenzy to buy. Did you forget the people that would sleep over at new subdivisions in order to get first crack at a house? Or how about all those new shows like flip this house? Also during the tech boom....everybody and his dog was talking of the NASDAQ.


Now I ask you....do you see line ups at coin shops? Is there a big frenzy to buy gold? Its very different compared to the true bubbles of the tech boom and the housing bubble. Plus remember this.....during the tech boom stocks were selling for over 100 times future earnings. Gold mining stocks are selling at very low multiples why? because there is still incredible pessimism on the future price rise in gold. In a gold bubble then gold mines would also be selling at 100 times earnings as it has in the 70's

Sorry you are making the classic mistake that many are making...all you see is the price rising and just assume a bubble....you need to look much deeper than that.

Bubbles need mass participation where there is a frenzy of people to buy....you just dont see that with gold.....at least not yet anyways!

 

there was a yield inversion in 1999 as I remember it well. And your figures are for the mid 2000's I said in 1999 .

 

and if you look closely the prime went from 7,75 in late 1998 to 9.50 in june of 2000.......so thats almost 2% higher....and sometimes its enough to burst a bubble especially if its over inflated and more importantly if there is a yield inversion!

You really dont understand investing do you?

 

Excellent post, imo - just about said it all.

During the tech stocks bubble, just about every night on the news there was some story about tech stocks and huge numbers of people owned at least some (or said they did/were about to buy some).
The same thing with the real estate bubble.

Today, rarely is gold/silver mentioned.

Just look at this board - for every 'gold bug', there seems about 1.5 to 2 gold bears.


Booms happen so long as new money keeps going into the product/area.

They bust when new money stops going into them.

That is why both of the above booms ended...they just ran out of new money to put into them.

Simple.


The VAST majority of the West does not own gold/silver...even most economists do not (apparently).
Yet, gold has been rising for over a decade (silver a little less then that).

The potential amount of new money available for gold/silver is huge.

And the fundamentals of gold/silver are 'artificially' low interest rates and too much cheap money.

Both are DEFINITELY in place and neither show any end in sight.

 

if I am not mistaken, americans are still actually net sellers of gold through outfits like cash4gold etc...there are more people selling their gold jewelery than people buying gold......hardly the ingredience needed for a bubble!

 

Exactly...how can there be a 'bubble' in gold/silver when the vast, VAST majority of Americans do not even own any appreciable amounts of either?

And despite this, silver is up over 660% in the last ten years.

Gold is up 470+% in the last 10 years.



http://silverprice.org/silver-price-history.html



http://www.goldprice.org/gold-price-history.html


Come on now.

 

The inflationary "gas" of most bubbles is composed of baseless hype. Is that a true statement?

 

You don't understand as a lot of people what Gold is. Why is a $20 lets say 1924 Double Eagle worth $1700 now?

The massive amount of debt we have in the US is quite literally unpayable. So we debase the currency through the money supply and pay down our debt with cheaper dollars.

We can't pay this debt off today, or tomorrow, its going to take a long time to just manage it and we may default eventually. Who knows.

This is what people don't understand. Gold is not rising its the currency that buys it is losing value. That is not going to stop anytime soon.

Gold is rising against virtually all currencies. No bubbles here. Interest rates are zero, the money supply is exploding. Invest and enjoy the run.

Your right about supply and demand. When the money supply explodes the demand for gold rises.

 

and so where is the hype with gold? As you can see for yourself there are way more bears than bulls on gold on this site. Now.....when you get 90% of the people all flocking to gold then yes....thats the ingredient of bubble.


PS ever since 2005 when gold hit 500 I have been hearing gold bubble LOL