Gold Bubble? What Bubble?
We continue to hear pundits describe gold as a bubble. Certainly it will turn into a bubble before this is all over but we are hardly in the bubble stage yet. In order for a bubble to form you need the public to come into an asset class. The public is pretty dim and it can take 15-20 years before they “catch on”. It took 18 before they noticed the tech bubble.
Once they do start to “get it” we will have about a year to a year and a half as gold enters the parabolic stage before the bubble pops. See the Nasdaq chart below from late 98 to March of 2000.
At gold’s top, half of your neighbors will be buying gold (not selling like they are doing now).
At the top there will be lines outside the the local coin dealer waiting for the next shipment of gold to come in.
At the top 7 of 10 billboards you see driving down the highway will have something to do with precious metals.
At the top the guy standing next to you in the grocery store will tell you how many thousands of dollars he made last month off his gold coins.
At the top everyone will have become convinced the dollar is toilet paper and will only continue to decline until it has become worthless.
At the top the population will believe that we have to go back on a gold standard. By the way, a gold standard never stopped any country from debasing its currency. In ancient Rome they clipped some of the gold out of the coins. Roosevelt confiscated and arbitrarily revalued gold in the 30’s. A gold standard will not prevent a government from trying to get something for nothing by debasing the currency.
At the top stocks will be universally hated and gold universally loved. In reality, stocks will at that time, represent true value. Much more so than a shiny metal with virtually no industrial uses.
At the top smart money will eventually come to their senses and realize that true value (profitable companies making the necessities for life on Earth) are being given away for pennies on the dollar to purchase a shiny metal that really has no intrinsic value.
Here is a chart of the Nasdaq followed by a chart of gold. You tell me, does gold look like a bubble yet?