Keeping The Faith

If there's any mainstreaming of gold, as shown by both ads and media reports, it's been on the sell side. The "Cash for Gold" companies have been advertising heavily, and stories about them are becoming semi-regular in the mainstream media. There have even been reports about complaints that those companies are underpaying and even cheating their sellers.

To put it briefly, gold selling has become mainstreamed. Gold buying hasn't.

As I've written before, and almost certainly will write again, we're at a tipping point right now. Gold isn't in an all-out bubble, but it could be if the metal's bull market gets rolling again.

As the previous entry explains, a gut-level fundamental analysis shows that gold is really overvalued right now. However, a contrarian would demur. Smart money is going into gold, some in a big way, while the so-called "dumb money" (the general public) has gone for selling gold in a big way. Even if the dog doesn't bark - if gold doesn't fall despite the new supply flooding the market - we're still on the bubble side of the tipping point.


There's still gold fever out there, although it's confined to goldbug territory. This Mineweb article, discussing the outcome of a reader straw poll, gleans this scenario for gold:

Mineweb's 2010 gold price competition has now closed and, as usual readers are overall bullish about gold's prospects in the year ahead. However the consensus also sees a fall to well below current levels occurring before the price surges again to record highs. It will be interesting to see if this scenario plays out over the year.

The average ‘low' price for gold seen by readers this year is a slightly depressing $996, suggesting that the $1,000 level may be breached on the downside - but perhaps only briefly. Reading between the lines with one's own interpretation of reader expectations it looks like this low point is expected sooner rather than later in the year, and with the current surge in the dollar price levels may well be vulnerable in the short term....

By the end of this year the straw-poll consensus number for year-end is well over $1,400. Given where gold is now, and how it's acted so far this year, that number's somewhere between "very optimistic" and "LSD-influenced."


What if that consensus ends up being right, though? What happens if gold does put in another >25% gain for 2010?

I have a modest prediction. The cash-for-gold companies are already courting investigations. If gold skyrockets, it'll be much easier to cast them as "cheaters" and "crooks." One side consequence will be new laws, and even indictments on the basis of old laws rigorously (or creatively) applied.