Gold's Still Holding

As the long weekend fades into the last trading week of 2009, gold has held above US$1,100/oz. As I write this post, spot gold's up to $1,108.40. The U.S. dollar's remarkable run-up seems exhausted, and this month's plummet in gold seems to have passed. This Reuters report quotes an unnamed Japnanese trading company manager as saying, '"Physical trade is slow, but there is general caution over volatility in the metal's prices in a seasonally thinned-out market toward the year-end."'


Another pundit has stepped up to the plate on the gold-bubble issue. David Olive of the Toronto Star repeats the gold-skeptic arguments faithfully, and quotes Nouriel Roubini copiously. A gold skeptic himself, his piece has the air of someone who wishes goldbugs would just crawl back in their hole.

This fellow's a little different from someone who thinks that gold's in a bubble because its rise has outstripped fundamentals. As I've written before, and will in all likelihood write again, gold is the asset class that (by far) elicits the most emotions. This holds true in both camps. Whatever can be said about Mr. Olive, he has stuck his neck out. Some may consider him brave for doing so.

However, his boldness should be taken as a sign that the gold bubble hasn't really gotten going yet. Pundits in the popular press don't Galbraith it up when a real bubble is climaxing. Too many of their witty like-minded colleagues have been turned into jokes at that point, and too many full-throated bulls are around to shout any skeptic down. This confluence is true of all bubbles. How many dared to call a top in Internet shares in late 1999? Of those, how many were mealy-mouthed about it? To the best of my knowledge, the answers to these questions are "very few" and "all of them."

For Mr. Olive to be right, gold has to fail to enter an all-out bubble. The November-December "mini-bubble" has to be it for the metal. He (and his quoted expert Nouriel Roubini) may be right, but the deflationist scenario has to kick in for they to be so.

Of course, I myself might be wrong in expecting a full-fledged bubble. Gold may pause for a while and start meandering up or sideways without any real conviction. 2010 might be the Year of the Trading Range for gold. In that case, the title of this blog would look a little, er, detached from reality. This action would be consistent with the muddle-through scenario, where inflationary and deflationary forces largely cancel each other out except for a mild inflationary bias. Should this case prevail, goldbugs may be happy to crawl back to the sub-basement and wait it out.