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Fool’s Gold: Watching the Gold Bubble Build

So I’ve been saying for almost a year how crazy it is that all the “sheeple” (followers) have been dumping their money, savings, and retirements into gold (because it’s “safer”). What they all seem to ignore is that this is just yet another bubble on the horizon. It amazes me how people will just repeat their mistakes, sometimes the same people following up one mistake with a worse one.

Do they not read? Do they not see the signs? It’s mind-boggling.

Granted, I’ve been saying how gold is a horrible investment back since it hit $800 an ounce. So anyone who didn’t listen has more than doubled their investment at today’s prices. That’s all well and good but I hope they manage to get out (or already have) before the bubble bursts and they lose more than they put in. Out of curiosity, I ran some calculations for the tech stocks, real estate market, and gold prices over the past 25 years. What I found was that projecting out the prices of 2002/2003 tech stocks to the bubble and through the bust was eerily similar in scope to the real estate data to the bubble and through the bust. When I then applied the same ratio of price increase by percentage over time to gold, it suggested a fair market value of about $675 an ounce. When I then hear people shouting that gold will hit $3,000 an ounce and higher, I can only think of how many people will get burned.

I remember back in 2005 when I used to warn people that housing prices wouldn’t go up forever and I’d always get the response of “real estate never goes down; you don’t know anything about investing” and I’d just laugh and shrug it off. Well, I had no idea the extent to which to real estate market would plummet but the point is that the same thing happened back in 2002/2003 with tech stocks and I learned from that experience. I used to day trade and that taught me a lot but I sold all of my stocks before the crash (although that was just dumb luck) and I remained a close watcher of stocks to learn more. From watching the market tank from all those lofty, “invincible” stock prices, I learned that nothing is immune –especially when the masses are involved.

The masses can pump a worthless thing to the stratosphere and then the “sheeple” eventually get burned. Sometimes it can happen quickly and sometimes it can take years or decades.

So, in less than a single decade, we’ve witnessed the demise of “tech stocks”, “real estate”, and the global economy as a whole. I laughed when they termed the 2008 meltdown a “recession” (eventually the “Great Recession’), because I knew better. It was a full-fledged depression. Politics. Now, though, the irony is that the economic fundamentals are worse than before and we’re teetering on the edge again.

What will happen? I don’t know. I don’t know and that’s why I’m staying on the sidelines right now. I’m certainly not chasing after gold prices, hoping to recoup losses or hoping that gold is the ultimate “safe haven.” That would be just asking to lose what little money is left. Instead, I will sit patiently (just like during the last market crash) and watch for perfect storm buying opportunities. I called the market bottom last time (to the week) when I told everyone I knew to buy Ford (F) when it hit $1/share! I told them that was the turning point and I also picked up shares of Sirius Radio for $0.14 cents a share! So I’m banking on the safer bet: patience. I’m banking that I can call it again, and if the market and economy magically pick back up; then great. I will miss out on investing for now but at least it will be easier to find better paying jobs and earn money then.

You may have noticed all the people shouting how gold is the safest bet in tough times and how everyone wants to buy your gold because it’s so valuable. I always remind myself that when the masses all shout the same thing in unison, it usually means one thing: change is coming and it’s typically the opposite of what they are shouting.



3 Comments

By easypointz on August 11, 2011

Gold is not a derivative based, 0 and 1 figure on a computer screen. It is a finite resource, but mainly, it has been a currency since the innovation of currency. The decline in the dollar and euro from inflation is rising the price of gold. Gold has always retained it’s purchasing power relative to inflation. Can you not see QE3 coming? Can you not see that the real “bubble”, a 700 trillion derivitive fire that erupted in 08, was pissed on by the fed to no avail, and is now about to burn Europe, and the rest of the West? As you sit on the sidelines, your paper is starting to look a lot more like… paper.

By Brandon on February 21, 2012

@easypointz
Just saw your comment. I think you have some valid points in there, but a “bubble” can occur, even in a situation where something has a direct correlation to the underlying foundation. The problem is that emotion can push the perceived value far higher than the actual value.

And as far as being a finite resource, I think it’s funny that people just assume that because someone picked Gold as the standard; it will always be the standard. What if the “powers that be” decided to really throw people’s world upside-down by setting the standard to Platinum? Everyone would lose their butts in Gold.

That may seem far-fetched, but if you had said 50 years ago that the dollar may not remain as the international currency denominator, you would have been laughed out of the room (since they didn’t have the Internet.. lol). But seriously, it is “possible” that the US could lose its status as the international currency backer, if things continue the way they are going.

Cheers,

Brandon

By Brandon on February 21, 2012

We are in a time of “wealth re-distribution” and this time, it seems like the “powers that be” have decided that there are no rules; all bets are off.

Things are happening, these days, to redistribute wealth that were unheard of -even just last decade.

I mean, I would not be a bit surprised if all the hype in the gold arena wasn’t a ploy to get India and China and other rich nations to stockpile tons and tons of gold, only so that they can pull the plug on it and watch their money dilute and disappear.

It would be the ultimate rouse. I would love to arbitrarily pick something and give it value and then hype it up so that you paid me a fortune for it and then, when my pockets were so fat and full of your money, I’d just change to another standard and keep your money. It would cause wars, but hey, that’s part of way humans do things.

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