Thursday, June 24, 2010

Gold in A Bubble?

Allen at "Everything Gold" considers the question of whether or not gold's in a bubble, and (unsurprisingly) says it's not in one. What prompted him to ask is the attention the metal's getting from the mainstream media now. He says that it's not evidence of a bubble for three reasons: one, there's a lag time between people being exposed to the idea and following through on it; two, there's no gold-at-any-price mania evident; three, people are not borrowing to obtain gold: bubbles need leverage, and there isn't any to speak of.

As is often the case, "bubble" is used to mean the climax of a bubble. The housing bubble didn't get rolling in 2005; it got going in 2002. Internet stocks were hot long before the bubble burst in 2000; in fact, it appeared as if the bubble had burst in 1998 before the sector got rolling once again.

Of course, indications of a bubble's climax are useful for pulling out before the bursting strikes. I agree with Allen that we're far from that point.

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