$1275 before dropping back to $1270ish. Silver is getting very close to its all time high as well.
In honor of the occasion I'm linking a Patrick thread from June 2006 where is was proposed that a gold price of $675 might be a bubble. ;)
Gold makes a new all time high today
By iwog Follow Tue, 14 Sep 2010, 11:04am 8,527 views 146 comments
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theoakman says
I disagree. It's possible but...
All else being equal, interest rates going up causes the dollar to go up against other currencies. It's simple. Say you're money is in Euros and all the short term rates in Europe (and the US) are 2% and suddenly the rates in the US go up to 4%. Dollars suddenly got more desirable than Euros, dollar relative to the Euro goes up in price. This isn't some sort of speculation, it is the way it has always worked.
It's true that it doesn't have to work this way (that's why I said all else being equal). For example if interest rates go up because the dollar is crashing ( the fed is trying to stop the crash with higher rates ) and the perception is that the dollar will continue to crash, then I could see the dollar dropping in spite of the higher interest rates. But that would be unusual.
The question of whether we can get our act together, and start basically living within our means, that is the question of whether we can pay off our debt is a longer term question. And even if "at some point" inflation is a part of how we deal with it, that is different than what you originally said:
But then again, everything is different than ever before this time, so who knows.
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thomas.wong1986 says
Uh--yes it is.
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San Carlos, CA
Might be a good time to sell?
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WHo knows what will happen. You can find numerous evidence for a rise or drop of gold prices. I myself have a very low tolerance for risk and would stay clear of gambling with gold.
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BobbyS,
"gambling" with gold would be like speculating on the price, in whatever units you choose, (USD, Euro, "shares of Dow index", etc). Using it to hedge would be likely because of a very low tolerance for risk. You can argue if it is a good hedge or not, but using it for a hedge is not gambling. Probably not a good hedge if the cost basis is today's price. Certainly has been a great hedge for the USD up till now for folks who "un-gambled" by hedging in it earlier in the decade.
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BobbyS says
A lot of the financial communities definition of low risk is USTbills earning 2%. If you asked me, they are the riskiest assets that exist today outside of Japanese Bonds earning 0%.
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theoakman says
You won't know when gold goes parabolic until after it happens. How do you know we aren't sitting at the top of an inverted parabola? You don't.
An good investor would dollar-profit-average as a hedge. A gambler would try to time the market. Don't try to make suckers out of people until you've assured it won't be you, Theo.
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theoakman says
I just replaced the word "gold" with "housing":
"Once housing goes parabolic, I’ll start selling. This has been a healthy bull run with plenty of pullbacks to prevent it from getting out of hand so far. I don’t really need to do any profit taking. I quintupled my net wealth in the past 3 years. Housing would have to crash to get me back to square one."
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Skokie, IL
I'm heavy in gold and silver at $400 and $6(heavy for my resources anyway) and I ain't selling for the same reason I aint buying a house.
Houses are still too expensive and the government is dead set on trying to raise housing prices which will only raise gold prices.
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Nomograph says
Actually you didn't.
Btw...where were all those pullbacks in the housing market during it's run from 2000-2006?
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Nomograph says
Weren't you singing this tune around $500 dollars ago? A "good investor" would have missed out on all those gigantic gains I made in mining stocks. And yes, I did take some profit there. I put a lot of it in Potash of Saskatchewan because Marc Faber told me to. Oops. The rest of it went into my down payment.
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So iwog, let me get this straight...
You think that the housing market has bottomed and is healthy, AND gold is going to continue appreciate in value? I don't find these views inconsistent since any severe inflation might prove you right (at least in gold). But you sort of remind me of a just barely-survived dot-com investor that believed the housing market in 2005 would continue to go up. Don't you see asset bubbles when they stare you in the face?
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How is AU a bubble? Look at where interest rates are. Look at debt levels. Look at the various governmental responses to the economic collapse. Look at unemployment. Look at pretty much ANY genuine economic fundamental, and then come back here and tell me that increasing one's holdings of a crisis hedge does not make sense and therefore must be solely rising due to baseless speculative behavior.
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I'm not saying it is, I'm saying it very well could be. It's like in 2006 someone saying "How is housing a bubble? Look at interest rates. Look at employment." Gold is extremely speculative and volatile in today's markets.
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theoakman says
The typical investor isn't nearly as brilliant as you. Hey, we can't all have the kind of insight that you do.
theoakman says
Cruisin for a ...
Or as my Aunt used to say, "you just have to live a while." For any of you old time traders out there, what would be better for this guy in the long run ? To be right ? Or to be wrong ?
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thunderlips11 says
There's a giant gold sink somewhere in the world for sure. Most bugs blame China but Russia and India are buying their share too.
There's something very creepy about gold and silver making record highs during the lowest interest rates in 100 years. 10 years ago every economist would have said this is impossible. Bob Brinker called investing in gold a "disaster" at $300 an ounce. I like Bob a lot, but that call was horrible.
My motivation has always been an inevitable dollar crisis since all economic trend lines either go exponential or to zero and cannot be sustained much longer, however I'm wondering if that's a good enough answer anymore. Is it possible that earth's billionaires need a new bubble and have decided at a secret meeting to make it gold? That would make some sense, but it still doesn't explain why central banks are now buying when most have been selling for the past 30 years.
Then there's the IMF.
In 2009 the IMF announced it was selling 403 metric tons of gold. Almost immediately the Reserve Bank of India scooped up 200 tons of it sending gold to a record high late last year. Since then the IMF has been liquidating the remaining 200 tons at about 15 tons per month.
There now remains 88.3 metric tons of gold at the IMF waiting to be sold. Furthermore sales by other central banks have declined to almost nothing. This is a VERY significant change in world gold supply since central banks have been divesting themselves steadily since the 1970s. World Central Banks are now net buyers.
Sometime in 2011 the IMF will be finished selling into the market and we may finally see gold hysteria confirming the bubble. I'm not selling a gram until we see $2000 an ounce. For silver, I want to see at least $35.
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klarek says
Not exactly. I said the bottom of the California housing market was 2009 and I'm pretty sure that will hold nationwide as well. For the next few years we'll see a sideways market and then slow appreciation.
Real Estate is NOT currently a speculative bubble. It has NO characteristics of the bubble that brought it to 2006 values. All media about real estate is negative. Fear is everywhere. Foreclosures and ghost towns are featured daily. If this isn't the bottom, it's damn close. Despite what some here think, there will not be a second crash. It can't happen.
Gold on the other hand is a 10 year bull market with significant gains just like real estate was from 1994 to 2004. It has VERY good potential to turn into a speculative asset bubble, but hasn't gotten there yet. What's missing is a media frenzy and everyone jumping on board. Fear of inflation will drive it but there's no inflation yet. Another year or two and we'll be there.
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marcus says
There wasn't any incredible brilliance behind my investments. In 2008 and 2009, everyone ran for the doors and literally piled into worthless US T-bills paying 2%. Meanwhile, there were companies out there producing essential commodities and goods that had dividend yields of 10-15% after those dividends were slashed 50%! I guess people really did believe we wouldn't be buying oil from these companies ever again. Why on earth would someone buy a US Tbill that earns 2% when they can buy a stock/trust that earns 10-15%? Because they thought the world was going to end. Gold was a no brainer. People cannot get it through their heads that it was undervalued on a historical basis because they sit in front of their computer and stare at the 1980 high of $890 which lasted all of 12 minutes. Furthermore, gold and silver stocks took over an 80% hit on the downswing in 2008. People on this board were screaming for $300 gold when it dipped near $700. My thesis was simple. Gold was going to $2000, Silver was going to $50. Mining stocks were down 80% from the peak when gold hit 1000 in March of 2008. If you believed that gold was even going to hit $900 again, how could you not buy into that? This wasn't complicated. Buy the big the dip and hold. That's all investors had to do. Yet for some reason, people were screaming "cash is king" while the S&P rose 60%.
Fast forward to today. Several mining stocks are significantly higher than they were prior to the crash in 2008. All losses were erased. They are leveraged to the price of gold and we haven't even come close to my original price target. Every single aspect of the market that drove gold to today's price is still in effect. Not only that, but those fundamentals are only increasing in magnitude.
Debt? Up
Monetary Expansion? Check
Unemployment? Here to stay
Quantitative Easing? Doesn't work but they'll keep trying
Interest Rates? Not much more downside there
Anyone that simply claims that gold/silver have been driven purely by speculation has not backed up those claims and the results have contradicted these claims for about 5 straight years. If gold was a speculative bubble, it would have been completely unwound during the deleveraging of 2008.
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Monterey, CA
If gold hits 2k and silver hits 50 - I'm cashing out and buying that damn boat.
I bought PM's a couple years ago assuming this may happen someday, but wow, we're about to blow through $1300 here real soon.
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Monterey, CA
I bought 100 of these right here at about $14 a piece a ways back : http://www.apmex.com/Product/44447/1_oz_999_Fine_Silver_Rounds___Buffalo.aspx
Right after the purchase, I thought, why did I buy rounds... (I always got either SAE's, maples or philharmonics)... they were just so cheap at the time - couldn't pass em up. But man - over $22 for a silver round? Hard to believe.
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Josh, I always buy rounds and/or bars (gold). I want as much pure bullion as I can get for the best price available. The Maples and Philharmonics are beautiful indeed, but so is the plain bar in my opinion. I am a big fan of Pamp Suisse gold bars - I love their emblem.
I don't find these bullion prices "hard to believe" at all considering today's economic metrics (all in the toilet if genuine stats and relationships are used). Blowing up a big balloon of debt and free loans does not "recover" any economy - it's all a joke/smokescreen.
Iwog, it's important to note that bullion is rising rapidly against nearly ALL fiat currencies, not just the USD. Bullion is an economic crisis/fear/instability trade in addition to an anti-dollar.
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schmitz_kris says
The dollar acts as a "reserve" for nearly every currency on the planet. It's hard to see how fiat currency can survive at all if the dollar fails.
I'm not saying it will fail, but I bet a lot of people buying gold right now are beginning to wonder. Realistically the dollar can survive a very severe devaluation without going all Zimbabwe on our asses, but of course fear is always driven by the extremes.
Real Estate bears need to take note that a gold bubble will likely drag the real estate market up with it. It's going to be painfully obvious what the OTHER tangible asset class is, even if people aren't particularly happy with that asset class at the moment.
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Nomograph says
What's missing is the media frenzy and gold investment clubs. Gold is STILL a relatively stealth investment with lots of interested people who think they might jump in at the next pullback, but in no real hurry to do so.
I also like my 5 year rule which is incredibly consistent throughout all the bubbles I looked at. the peak of a speculative bubble is 4-5 times the price 5 years prior. The Nasdaq peak was 5000. 5 years prior it was under 1000. The oil peak was $147. 5 years prior it was $30. The 1980 gold bubble peaked at $830. 5 years prior it was $150. The Nikkei bubble was a little off, but still very close. It peaked at nearly $40,000. 5 years prior it was just off $10,000. The Shanghai bubble peaked in 2007 @ 6000. 5 years prior it was trading around 1500. Even the wheat market bubble driven by misguided energy legislation fits the mold with a peak of $12 and a 5 year prior price of about $3.
The consistency is unbelievable. The Real Estate bubble didn't conform very well, but I consider real estate to be a special case with special rules. Gold is going to perform a lot closer to stock market bubbles ESPECIALLY now that ETFs are easily bought and sold.
According to a 5 year chart, gold was at $452 in September 2005. The minimum value for gold to be a bubble peak right now would be $1800. If gold goes crazy in 2011, I'd expect $2000 to be a conservative estimate with $2500 to be the danger zone. I know all this sounds crazy, but other than real estate I can't find any good exceptions to the 5 year rule. IF gold is destined to be the next speculative bubble, it's going to top out at between $2000 and $2500.
I guess the biggest threat to my little theory is that gold isn't going to catch the public's imagination and will not result in a real speculative bubble, but it might and if it does it should be pretty predictable.
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MAybe the 4-5 times increase of your rule is correct but it took a little longer this time 9 years. Gold was 260 or so in 2000 - 2001. In California the real estate low was 1995 or 1996, the next high was what ? 2006 ?
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I remember when Florida real estate was such a no brainer because we all knew the baby boomers were going to be retiring. Probably a lot of speculators thought, I'll be smart and "sell the fact," I'll even get out right before they start retiring.
But alas, Mr. Market outsmarted so many. My point ? It's not that hard to be right about something being undervalued or over valued. What's hard is knowing how much more undervalued or overvalued it can become. That is, the timing is the hard part.
The people who bought gold at 830 for a semi long term play in 1980 were right. But they might not have expected it to be 30 years before they were right.
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I'm not saying that I think gold is at it's high. I have no opinion now. Seems like a coin flip to me at this point. But I was very bullish on gold in 2001 - 2004 and told others to buy it (I almost never give such advice), but I didn't have the funds to buy much then.
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To change the focus somewhat, do most of you buy physical gold bars and/or coins? If so from where? And how actively do you trade them given they are physical assets.
I have been buying GLD but found out recently that it is just paper backed and it isn't clear to me what the correlation or maybe specifically the ratio in price between the security and the physical asset is. With all this talk about trading options that seems to be a fairly intrinsic risk. Thoughts?
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Iwog - congratulations on a great call on gold.
I don't grok what your logic is for Re being different. We have a supplyside glut,a very weak demand side (unemployment, wage stagnation, high indebtedness, change in sentiment towards ownership). What should 2009 be the bottom especially when things along the supplyside definitely seem to be getting worse?
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globe33 says
Well it is not supposed to be paper backed but there are some who suspect the amount of GLD in the ETF is nil. Anyhow, I havent bought GLD but watch it. It seems to track close to goldprice/10. Of course there is risk , gold can go down for long periods. I own some coins purchased at various coin shops and the US Mint. To me it is an assett worth owning not selling.
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What is the strategy to handle the capital gains tax on gold? 28% is a nasty hit, especially if one considers the markdown most dealers want to take when you sell them your coins or bars.
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Philistine says
APMEX round trip commissions are extremely cheap right now. On 20 ounces, you buy at $1353 and they will buy your gold back at $1324. That's a $29 commission per ounce and works out to be around 1% each way.
The 28% sucks but not much you can do about it unless you get creative with the record keeping.
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iwog says
Or craigslist.
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iwog says
March 08 to Sep 08 was definitely a bear trap. It matches almost identical with the oil bubble chart when I over-laid them. If the bubble theory is correct, we should get the "media attention" about now or soon. However, one could argue that the gold bubble didn't start till Sep 06. That means that the bubble top is around Sep 11? Oh shit, what did I just typed? 9/11. Hmmm, I'd better stop analyzing now before the conspiracy theorists get to me. It's fun to analyze these stuff nevertheless :o)
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E-man says
During that 2008 time period, there were about 15 posters on this website calling it a double top and posting technical charts detailing a crash down to $300. You never hear from them anymore, yet they do still post on these forums. You won't find them showing their face on this thread.
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theoakman says
That's true. The bias on this board has always been towards a deflationary collapse which according to classic economics should crash the gold price.
The fact that gold is doing exactly the opposite should be an indication that the entire premise of a deflationary collapse is flawed. Huge amounts of money are being bet (by a relatively small number of people) that we're headed towards something very different.
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theoakman says
I called a double top around 1100 or so. Shoulda listened to my brain - because all the fundamentals support(ed) higher prices.
Can't completely knock me though - I went in really heavy on physical when it was well under 1000. Always a strong fan of the PM's - just got uneasy when it got to that level..... Now 1100 screams buy.
I still believe homes/cars/certain goods will deflate. It seems we are having it both ways, but I'm not in the hyperinflation camp yet.
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shrekgrinch says
I'm like pretty sure that the US is exactly like Zimbabwe and stuff.
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iwog says
It seems to me that we had inflation (in energy and real estate) in spades since 1997. This was caused by inflation (increase in the money supply/credit). Since 2008 credit has become less readily available (or shall we say credit has been restricted to those who can reasonably be assumed able to repay) and we are seeing "deflation." Many people lost "money" in 401k and stocks but since much of this money was created out of credit during the bubble years it is only a paper loss (there never was any money there in the first place unless you cashed out while the casino was still open). The banks were bailed out, so their losses were minimal if any (except for the ones that have been shuttered).
So what were are left with is not really deflation. It is some weird hybrid where the mega rich (bankers and other corporate moguls) have held on to or increased their net worth, and the less affluent have seen their net worth shrink faster than the bubble expanded. The bubble and subsequent bailout for the banks served as a wealth transfer mechanism from working class up to the elites. The mega rich have the money that has "disappeared," giving the appearance of deflation.
Personally I do not look for deflation (though I do expect prices in non-essentials to remain flat or decline in the next 1-3 years). I do expect mild to major increases in cost of food, energy, commodities paired with mild to moderate decreases American small business profitability. I also expect that sooner or later the collapse will be a currency crisis when people around the world realize that the United States (US corporations) have abused the reserve currency advantage and seek to ditch the dollar ASAP. The result will be a brief period of hyperinflation (irrevocably destroying the dollar as reserve currency) followed by a new international or even world currency.
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AdHominem says
It's not some weird hybrid. It's simply the concentration of wealth, and it's the inevitable end of unregulated free markets.
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Davis, CA
You know I hate saying this Iwog.
It galls me. I am 100% anti-goldbug.
You were right.
It also scares me a bit that you nor anyone else really know what exactly is going on. Where is it all going? I wish this stuff was tracked so you could find out if J. GotRocks is trying to corner the market or something.