Year's End Take From The Financial Sense Newshour

This weekend's Financial Sense Newshour show is the last new podcast of the year. The others in the next two weeks will be re-runs. The hosts have adopted a four-stage model for the gold bull market which John Hathaway of the Tocqueville Gold Fund came up with (on Scribd doc, p. 2). The first stage is the "beginning," which starts off slowly and eliminates an investment's undervaluation. The second is the "end of the beginning," which features "noisy and dynamic behavior." Mr. Hathaway believes the second stage ended when gold reached US$1,000/oz. The third stage, which we're in now, is the "beginning of the end," when frothiness enters the market. The fourth and final stage is "the end," or the final blowoff.

In this model, a bubble is reached in the fourth stage and incubates in the third. Hathaway is on record as expecting irrational exuberence to enter the gold market:

Hathaway believes cultural lag is the key to understanding why gold, "ridiculously undervalued for an extended period, could be on its way to becoming an investment bubble, perhaps several years from now."

"In our view, public expectations are about to pivot in a way that will ultimately take gold to valuation that cannot be explained by dispassionate and reasoned discourse," he predicted. "Irrational exuberance lies ahead for gold."

However, he believes that gold isn't in a bubble right now: "'Gold is a bubble only for those who maintain faith in the politicians and financial authorities to swim against the tide of deflation. For the rest of us, it is protection against monetary damage still to come.'"