Many people say gold is a bubble about to burst, but is that really the case? One of the problems with identifying bubbles is that one is not certain one exists until it has already begun to burst. I do not think that is the case with gold today, at least not yet.
1.) The average American is selling gold, not buying, because they need the money and believe the mainstream press, which keeps telling them prices will collapse soon because they are too high. In the late 1970′s there were huge lines winding around coin and jewelry shops as everyone rushed to get in on gold. Today if you go to those establishments and wish to sell, you had better plan on being there a while because so many people want to cash in on high prices. Not nearly as many people are buying, at least at the retail level, in the U.S.
People at cocktail parties may be talking about gold’s meteoric rise, as Dennis Gartman, a longtime commodity trader and author of the Gartman Letter said recently, but they are mainly doing just that – talking about it. If you ask people if they actually own gold, relatively few people outside of the very wealthy and people outside of America in fact do.
2.) Only 1%-2% of the world’s wealth is in gold. During the last bull run in the late 1970′s, 5% of the world’s wealth was in gold. Much is being made of the fact that the exchange-traded fund (ETF) that tracks the price of gold (GLD) has surpassed the total value of the ETF that tracks the S&P 500. But what is not mentioned is that one company’s total stock shares, Apple, have a value that is four times that of GLD. The gold market is only a fraction of the equity market, and the bond market is much larger still.
3.) Most demand for gold comes from India and China, which are expanding economies likely to continue growing. As the size of the middle class in Asian countries increases, more and more people seek to protect their assets from rising inflation. Emerging markets are the major growth area in the world economy in the coming years, so this trend is likely to continue.
4.) There is a remarkable degree of skepticism about the current gold rally, especially in the mainstream financial media. Hardly a day passes without commentators on CNBC proclaiming that gold is a bubble and that wise investors should sell. The same is true of magazines and newspapers like Barron’s, Money, and Kiplinger’s, which regularly feature articles warning about the dangers of investing in gold.
5.) Gold’s status as an asset class is changing. Some people now call it an alternative currency rather than just a safe haven or a hedge against inflation and uncertainty....
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