# The Ultimate Gold Bubble Test



## ringledman (14 Nov 2009)

How true. Joe public is only just talking about gold let alone buying it. This bull market has many more years to run.


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## george.shaw (24 Nov 2009)

Very good and astute article Ringledman.

This one in Money Week is good too:

Three ways to tell when gold's bull market is over
http://www.moneyweek.com/investments/precious-metals-and-gems/how-to-tell-when-golds-bull-market-is-nearly-over-94802.aspx?utm_source=newsletter&utm_medium=email&utm_campaign=Money%2BMorning


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## ringledman (24 Nov 2009)

Cheers George Shaw. 

Yes moneyweek have a pretty good contrarian stance.

The lack of response to this post highlights the apathy towards gold. No one really has an opinion on it. Long may that continue!

Another interesting websource is www.madhedgefundtrader.com 

Have a look at his daily diaries. Excellent.


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## UFC (25 Nov 2009)

I was going to start investing in gold about 12 months ago, but it just seemed a bit too weird for me, and I would be a lot more economically educated than the average person!

People can understand buying property because they can see it and they've lived in one all their lives. But buying gold which is in a vault somewhere in Switzerland and which you'll never see or touch... I think it's a bit too vague for most people.


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## mystry4all (25 Nov 2009)

Why is the price of gold getting higher and higher? Value of US Dollar is falling?
Will it increase more?


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## ringledman (25 Nov 2009)

mystry4all said:


> Why is the price of gold getting higher and higher? Value of US Dollar is falling?
> Will it increase more?


 
Gold supply increases by 2% or so per annum. 

Paper money is being printed at between 10-30% per annum. 

Tell me which way gold can go but up???


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## mystry4all (25 Nov 2009)

Price per ounce or gram....i am talking about the price of gold


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## ringledman (26 Nov 2009)

mystry4all said:


> Price per ounce or gram....i am talking about the price of gold


 
Yes and I am also talking about the price of gold? Bit lost in what you are saying. 

It doesn't matter if you price it in ounces, grams, stones, whatever. 

Gold is rising in price because we have appauling global governments, increasing fiat currency supply and government debt and mis-management.

There is s*** loads more paper notes circulating around the world chasing only 2% more grams of gold every year. When more money chases the same quantity of a commodity/item then the commodity/item generally rises in price. 

Inflation is defined by the increase in supply of money. Globally we have massive, massive inflation in the order of 10-30% due to the printing presses. So far this inflation has fed itself into rising asset prices. It is only a matter of time before it feeds into rising consumer goods. 

It is a myth that inflation is the rise in consumer goods. Inflation is defined as an increase in money supply. Rising consumer prices are a result of inflation in the money supply.

So gold is increasing in price for 2 reasons - 

1) Global miss-management & poor governance.
2) Increase in inflation globally.

And before anyone say's Ireland and Europe have deflation, incorrect. The ECB is increasing money supply at 13% or so per annum. Yes consumer prices are falling in Ireland and Europe, but Inflation is still prevelant and therefore gold will continue to rise long term even against the euro.


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## mystry4all (26 Nov 2009)

Hi Ringledman,

Thanks for the explanation


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## ringledman (26 Nov 2009)

No problem mystry.

In the very, very long term the return on gold is 0%. 

An ounce of gold today still buys the same 4 suits as is written in the bible (the saying goes something like this). 

So over the very long term gold doesn't make you a cent. It actually costs you 1-2% per year to store. 

However the story of gold is that during decades of miss-management (as we have now with Bush/Obama/etc) the price can skyrocket. 

Likewise, during good economic decades with good economic governance (i.e the 80s under Raegan/Thatcher/etc) then gold can plummet in value against the long term average trend.

Also as governments print and print and inflation increases then the purchasing power of gold also tends to increase. When it is skyrocketing in value, the currency is however falling massively in value (you hope at a lesser rate than gold's increase).

Gold also generally acts inversely to other assets. It has a low correlation so as other assets falls it generally rises. 

So principaly buy gold in order to preserve your wealth and act as a hedge to your other asssets falling in value. 

And in the very, very long term it is a pointless asset to own. 

Nonetheless, in the next 5-10 years its prospects will likely remain good. One day however things will improve and it will be an asset to ditch in its entirety. 

A 10% of my net worth is what I wan't to tie up in gold and silver for the next few years or decades.


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## dockingtrade (27 Nov 2009)

ringledman said:


> Also as governments print and print


 
Is this more so for US dollars or for all currencies.

If oil is ever priced in euros (as i read somewhere) there would be even more of an over supply of dollars, but would the govt then stop printing. How would this scenario impact on gold, do you think? 

I  seriously considered buying it this time last year , but of course all talk. Im looking to do it now. 

If you dont mind how do you buy & store it?


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## ringledman (27 Nov 2009)

dockingtrade said:


> Is this more so for US dollars or for all currencies.
> 
> If oil is ever priced in euros (as i read somewhere) there would be even more of an over supply of dollars, but would the govt then stop printing. How would this scenario impact on gold, do you think?
> 
> ...


 
I don't know what would happen if oil was priced in euro's! 

All I do know is that if the two largest holders of US government bonds (The Chinese and Japanese) lose confidence in the dollar continuing to be devalued they could well and truly f*** America by dumping the lot. 

Then hyperinflation would hit the USA. Sounds remote but it could happen if the dollar continues to fall. 

Marc Faber reckons the eventual worth of the dollar is zero. With total government liabilities heading for 500% of GDP with their stupid medicare scheme then it may well happen within a decade or two. The USA is technically bankrupt.

Buying and storing - Peter Schiff's books titled 'bull moves in bear markets' or 'crash proof 2.0' set out how to buy gold. 

You also want to read about the gold pyramid - 

http://www.moneyweek.com/investment...s/a-beginners-guide-to-investing-in-gold.aspx

I neded to buy some bullion! Some people say 'if you don't hold it you don't own it!'

ETFs come with third party risk. I personally don't trust holding gold in the US, UK or Swiss for the long term. I want to sell my ETF's. 

If the s*** well and truely hits the fan then these countries will likely re-patriate individuals gold for worthless fiat currency to save the government. Also the US will put pressure on the UK and Swiss to do so. 

If I had a lot of cash to invest in gold I would probably buy Perth Mint Australian share certificates or hold it in Hong Kong.

These countries won't give in to the USA's bullying. Australia cannot afford to lose its gold status so will protect individuals holding gold there. Gold and commodities are too important an industry to lose for the sake of helping out a crumbling USA. 

And, Hong Kong too with China's backing won't give two hoots to a West looking to steal their gold off their citizens.

Warning - Gold is highly volatile and could easily crash 60-70% in its bull market. Buy on the dips. One could come soon so I would be cautious.


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## dockingtrade (27 Nov 2009)

thanks for the time & detail in your reply


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## mystry4all (27 Nov 2009)

Hi,

Today---Gold price has come down in Dubai due Dubai Crisis???


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## Pennyscraper (28 Nov 2009)

ringledman said:


> Gold supply increases by 2% or so per annum.
> 
> Paper money is being printed at between 10-30% per annum.
> 
> Tell me which way gold can go but up???




Yes, but we've actually reached peak gold, in the sense that mining ops have decreased so much, gold mining finds are decreasing etc. Its literally a question of supply much more so than the much trotted out Indian jewellery demand factor usually aired.


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## The_Banker (14 Dec 2009)

Is it me or do the main advocats of gold on this thread sound like they are trying too hard?


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## ollie323 (14 Dec 2009)

Where does the Dow/Gold ratio come into this? According to some, gold may rise to $3000 and the Dow go down to $3000. This being a 1/1 ratio. It has happened in the past. No reason it won't happen again. The only variable is where and when the 1/1 ratio will happen. As usual, it's a guessing game for us mere mortals.


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## ollie323 (14 Dec 2009)

Here is some info on the Dow/Gold:
http://seekingalpha.com/article/123107-dow-to-gold-ratio-continues-to-plunge
http://www.goldprice.org/dow-gold.html
The scary thing about all of this is that we are not quite at the bottom yet. But when we get there we should all sell our gold and buy equities! If only it was that simple.


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## onq (15 Dec 2009)

I presume you guys have all heard about the Tungsten/Gold Bars scam?

Be careful what you invest in.

ONQ.


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## ollie323 (15 Dec 2009)

The last time this was tried was in 1983. I was just after the dow/gold passed its lowest and equities were on a recovery. Kinda funny that it's happening again. Could it be designed to keep us lowly people from becoming wealthy? Call me skeptical but i'd say so.


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## Chris (16 Dec 2009)

onq said:


> I presume you guys have all heard about the Tungsten/Gold Bars scam?
> 
> Be careful what you invest in.
> 
> ONQ.



It is a theory/rumor at the moment. I have spent a couple of weeks searching news articles in the US, Canada, Australia, UK, Ireland and Germany. Not one of the dozens of articles was able to point to verifiable facts about gold plated tungsten bars. A lot of the articles have an early stage "conspiracy theory tone" to them, with statements like "a trustworthy source of the writer has verified that there are huge ongoing investigations on gold reserves in XYZ" and "verifying authenticity of gold is very difficult and time consuming as the bars have to be drilled individually" (all with lack of references).
I'm not saying that it is not true. What I am saying is that I have yet to be shown proof from some sort of commodity auditing company. Bottom line is that buying anything involves a certain amount of trust in the person or company you buy from; when you buy food you trust it won't poison you; when you buy a car you trust it is safe and in sound working order; if you buy shares you trust the broker actually bought the shares and didn't do something else with your money. Buying gold is no different than anything else.


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## csirl (17 Dec 2009)

I think this is a bubble. I know someone in the jewellery business. Said that gold has gone up so much, that jewellers are selling existing stock (maybe purchased months ago) as scrap gold as they get more money for the scrap value of the gold than they do selling the items to the public. Bear in mind that due to the recession that the retail jewellery trade has been hit, so prices have fallen. Also said that most members of the public are being ripped off by a pletora of middle men who have started buying scrap gold. Apparantly most of them are buying from the public at much lower prices - sometimes more than 100% less - than the trade can sell scrap gold. Pure profiteering and echos of the property bubble.


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## Chris (17 Dec 2009)

csirl said:


> I think this is a bubble. I know someone in the jewellery business. Said that gold has gone up so much, that jewellers are selling existing stock (maybe purchased months ago) as scrap gold as they get more money for the scrap value of the gold than they do selling the items to the public. Bear in mind that due to the recession that the retail jewellery trade has been hit, so prices have fallen. Also said that most members of the public are being ripped off by a pletora of middle men who have started buying scrap gold. Apparantly most of them are buying from the public at much lower prices - sometimes more than 100% less - than the trade can sell scrap gold. Pure profiteering and echos of the property bubble.



During the property bubble people were urged to buy property. At present people are being urged to sell their unwanted gold jewelry. Very big difference.
Late stages of a bubble will show many members of the public directly buying gold. I have yet to meet someone outside my family that knows how to go about buying gold, let alone owns gold. It sure will develope into a bubble at some stage, but I believe it's a long way away.


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## csirl (22 Dec 2009)

Chris said:


> During the property bubble people were urged to buy property. At present people are being urged to sell their unwanted gold jewelry. Very big difference.
> Late stages of a bubble will show many members of the public directly buying gold. I have yet to meet someone outside my family that knows how to go about buying gold, let alone owns gold. It sure will develope into a bubble at some stage, but I believe it's a long way away.


 

There are signs that this is happening. Our housing estate has been leafleted at least 3 times over the past 2 weeks by seperate apparently locally based people looking to buy unwanted gold jewellery. As I've relatives in the jewellery business I know that none of these 3 are in the trade. In the same way that we have opportunistic people with no past experience getting into the property game during the past decade, it seems like similar characters are now turning to gold trading. If there are a number of them in our area, I'm sure there are a lot more of them leafleting in other parts of the country. 

Think of it this way - the cost of the raw material used by the jewellery trade now costs more than the finished product! This is unsustainable. To use a property comparison, it would be as if the cost of a truckload of concrete was more than the sale price of any building it might be used to construct. Madness.


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## Chris (22 Dec 2009)

csirl said:


> There are signs that this is happening. Our housing estate has been leafleted at least 3 times over the past 2 weeks by seperate apparently locally based people looking to buy unwanted gold jewellery. As I've relatives in the jewellery business I know that none of these 3 are in the trade. In the same way that we have opportunistic people with no past experience getting into the property game during the past decade, it seems like similar characters are now turning to gold trading. If there are a number of them in our area, I'm sure there are a lot more of them leafleting in other parts of the country.



There are much much simpler ways to start your hands at gold trading or investing, than getting people to give you old jewelry that has to be melted down and separated into its components (unless it is to be sold on as non-pure and non-investment grade gold).
The 'send in your unwanted gold' companies you see advertising are seeking out unsuspecting or ignorant people that will part with their gold at vastly undervalued prices. People who are trying to get used jewelry are not gold investors.



csirl said:


> Think of it this way - the cost of the raw material used by the jewellery trade now costs more than the finished product! This is unsustainable. To use a property comparison, it would be as if the cost of a truckload of concrete was more than the sale price of any building it might be used to construct. Madness.



The reason gold jewelry is still relatively low in price (compared to pure gold) is because demand for jewelry is down, and there is plenty of supply of existing jewelry. As a gold smith or jeweler you do not have to by pure gold on the open market to make you products, you can buy scrap gold or use existing unsold inventory. I very much doubt that jewelers are selling products at a loss these days.

Gold use goes far beyond jewelry! The largest purchases of gold bullion have been for investment purposes by central banks and private investors and not by the jewelry trade. I fully agree that gold will turn into a bubble, but just because someone is looking to buy your gold, and not SELL you some, doesn't mean we are anywhere near the end of this bubble.


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## csirl (23 Dec 2009)

> There are much much simpler ways to start your hands at gold trading or investing, than getting people to give you old jewelry that has to be melted down and separated into its components (unless it is to be sold on as non-pure and non-investment grade gold).
> The 'send in your unwanted gold' companies you see advertising are seeking out unsuspecting or ignorant people that will part with their gold at vastly undervalued prices. People who are trying to get used jewelry are not gold investors.


 
My relatives in the business say that these people are just collecting the old jewellery and bringing it to the scrap gold merchants. Dont do any melting down or separating of components - the scrap gold merchants who buy from trade already do all this. As you say, unsuspecting people are parting with gold at at vastly undervalued prices.


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## sunrock (23 Dec 2009)

Quantitative easing and money printing by all the fiat paper currencies has given gold a boost as people are fearful where all this money printing will lead to.Inflation and weak currencies are where we are going.Gold jewellry is now sought after for its scrap value,just like the van men looking for old copper cylinders.
However sooner or later as some currencies resist debasement and become strong and are a safe store of money gold will fall in value again.This might take a few years though.


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