Tuesday, May 11, 2010

Expectation Of A Gold Mania

In a recent Stockhouse commentary, Brian Hunt presents the case for gold going in to an all-out mania. In doing so, he draws upon a February 18th, 2009 article published in the Financial Times predicting the same thing.

(Evidently, someone beat me to it. I thought I was out on a limb, alone, when I penned my own piece in November of that year.)

Hunt's own reason for expecting a mania is the level of government debt, and the number of promises made to pretty much everyone:
As that little-read article mentioned, an asset must have one key ingredient to enter mania phase: It must have the "new era" factor… a set of conditions folks can point to and say, "This time is different… The old, conventional methods of valuing assets are useless in this case."

As we've noted many times in DailyWealth, you can make a good case that this time is different. Never before has the nation with the world's reserve paper currency – which is backed by nothing but faith in a bankrupt government – promised so much to so many people (Social Security, Obamacare, unlimited military commitment).

We're funding many of these promises with borrowed money… so crushing interest payments are on the way. The U.S. government could pay as much as 20% of its tax revenue to service the national debt in just three years. Imagine working your tail off just to pay the interest on your credit cards....

He says "mania," I say "bubble." They amount to the same thing except for the spin factor. I prefer "bubble" because it serves as a reminder when the mania goes manic.

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