Is gold in an economic bubble? What might cause the bubble to burst?
Gold prices at the time this question was asked are $1755 per ounce. Investors are using gold as a hedge against currency. What might bring the gold market crashing down? Large investors who dump their gold to crash the market and spook the lay investors and small fish and then scoop up more than they originally had at huge discounts. Governments confiscating gold and giving currency in return to deal with public debt.
I don't think gold is in an economic bubble at the moment. Of all commodities, gold is one which should heavily retain it's value and with a constant decrease in the amount of raw gold remaining in the ground, gold will most likely always be on the up and up. It's one of the more precious metals in the world and always has been a fairly stable asset for many generations.
DeviousOne...I agree with your point that the value of gold is intrnisic but it is not stable unless there is a global superinflation taking place without anybody realizing it. The precipitice rise in the price of gold (instability) is what prompts my question. I think the price will inevitibly fall as currencies stabilize and we get through (if we get through) the current crisis. But will it fall gradually? At first maybe but a gradual decline will scare investors, particularly those with paper gold, and they may start panic selling that will lead to a price collapse to pre-2007 levels. 10 years ago gold was $300 per ounce. What explains its rise other than fear of other financial instruments and currency. As the fear subsides prices will fall. The fall will gain momentum quickly leaving investors who bought gold in the past two years hysterical to unload. Conversely, governments may prevent a collapse by buying gold on the way down to secure the value of their gold holdings. We will see.
Gold is a safe haven during periods of economic and/or political instability or uncertainty. Unless there is some magical transition from the current path of socialism in the US and around the world, then this path can only result in leading into chaos.
Gold began rising after the stock market crash created market instability. Gold continued rising due to political instability after 9/11. Now we have increased the global geopolitical instability in leaving Iraq, stating a date of departure from Afghanistan, Egypt is now run by radical fundamentalist Islamic Muslims, Libya is in chaos, Iran will have a nuke in less than one year. Turkey is having problems with Islamists. Pakistan is problem. And Europe is being overrun with radical Islam. A Danish cartoonist is targeted for assassination by radical Islamic fundamentalists because of a cartoon on Mohamed.
The only thing holding this together is America which is bankrupt financially and morally. In addition to the fear factor, there are economic realities. The US Treasury has devalued the currency. Economic policies have been put in place an inevitable outcome -- INFLATION. Inflation is wealth destruction. A nation cannot print money and borrow and spend without creating future inflation. It is an economic reality similar to reality of gravity.
If you don't believe me just answer this question: "would you prefer to have received a safe from you great grandfather filled with $10,000 in gold or $10,000 in American dollars?" Hint -- $10,000 in gold from 1913 would be worth $850,000 versus the $10,000 in cash being worth around $400.
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