robert musial.
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PERSONAL COMMENTARY: The possibility of a ‘Gold Bubble’
The possibility of a gold bubble has been on my radar since gold prices hit all-time highs, and on 29-JUL-2009 I went live on the Michael Medved Show to discuss my theories. My theory is based on three main factors:
- Tactics being employed to sell (not finance) gold.
- Herd mentality of investors worsened by modern networking.
- Lack of intrinsic value of gold in today’s society.
The tactics being used to sell gold are essentially the same as real estate only a few years ago. The ideas that gold has never been worth ‘nothing’, that it is a tangible asset, and that if you had invested in gold versus real estate (now in 2009) you’d be doing much better, however, all the same can be said about real estate in 2002. My house isn’t worthless, it is just worth a lot less than what I paid for it due to unreasonably high market values versus the house’s intrinsic value, caused by a stampeding herd of investors. This herd was only made larger by the internet and mass media telling everyone how high the value of real estate was. Gold is currently experiencing the same sales stampede. As investors flee real estate they need some place to land, and gold seems to be their safe haven of choice. This ‘landing’ caused an initial jump in gold price, which only served to attract more investors looking to hedge against inflation, and get in on the next big thing.
The differences are there, however. As far as I know, no one is financing 1500% of their annual income to buy gold, so if the bubble does burst, it won’t cause such a systemic financial industry failure. However, for the average investor, the husband and wife with two-point-three kids, the consequences of the bubble could be just as bad, if not worse. Your house, though undervalued now, still gives you shelter, a place to live and raise a family. Other than the speculated worth of gold, what good is that metallic element to the average investor?
This commentary isn’t designed to steer anyone away from any one investment, and certainly should not be taken as financial guidance, but it should raise question as to today’s accepted truths about tangible investments, and also the manner these truths are spread, causing the herd of humanity to run over the edge of the financial cliff.
