Someone Please Explain To My How There Can Be A Bubble In Gold And Silver

The idea is absurd.  In today’s Denver Post, just like everyday, there are two outfits running full page ads asking/begging to buy your gold and silver.  These ads are not cheap to run, which means there are plenty of people out there unloading their bounty.  DEFINITIONALLY, an asset class is in a “bubble” state of being when the masses can’t buy enough of an asset class. The most recent and obvious examples are the internet stocks of the late 1990’s thru April 2000 and the housing market.  With housing, there were bidding wars among buyers of crappy homes that had already quadrupled in price, buyers typically owned multiple homes and were looking to buy and flip and leverage was being used to the fullest possible extent.  THAT is a bubble.  THAT state of being does not exist in the metals markets.  It’s that simple.

Here’s some support for my view from James Turk, one of best market analysts I have ever come across in 30 years of involvement in finance:

We finally broke through resistance of $1,440 and in my opinion we’re starting to see the beginning stages of an upside explosion in gold.  It’s sort of amazing to think Eric that here we have gold at record highs and it still hasn’t yet caught the public’s attention.

Here’s the LINK to the full text of Turk’s comments.

In fact, not only is the general public a better seller of gold and silver, rather than chasing the prices higher as buyers in true bubble form, but big institutions have not yet moved into the sector.  GLD exposure does not count – or any ETF for that matter except the Sprott trusts – because the ETF’s are nothing more than paper investements.  You need to have the ability to take delivery of the physical metal at your command in order for it to be considered a true purchase, or transfer of ownership/title transaction.  Anything else is fiat paper.  Here is a perfect, factual illustration of my point – I sourced this chart from Casey Research (edit in red is mine):

This chart shows the value of gold as percent of total global investment assets.  Still under 1%.   As  you can see, back in 1968, before anyone even knew what an investment bubble was, gold represented just under 5% of global financial assets.  Now, historically it has been an accepted tenet of portfolio management that gold should represent 5-10% of any investment portfolio, if just for the reason that it has a negative market beta.  That chart shows me that, at best and on average, gold is less than 1% of investment portfolios, institutional and individual.  How the hell can this possibly be the statistical profile of an asset that is in a bubble?  This chart tells me that there is an absolute tsunami-sized flood of capital that still has yet to flow into the sector before we can even begin to whisper the “B” word.
Thus, not only is gold NOT in a bubble state, but it BARELY registers as an investment with big institutions AND the public is still dumping it.  The day that I open up the Denver Post and I see several full-page ads of companies offering to SELL me THEIR gold and silver is the day that I start to unwind my investment in gold/silver/mining stocks and come up with a new investing paradigm (rest-assured, I will likely have already formulated a gameplan before that happens).
So, for all of you who want to believe that the gold trade is “too crowded” and is in a bubble, I am happy to buy everything you want to sell….buon fine settimana a tutti!

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