The Ultimate Gold Bubble Test

onq said:

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

Be careful what you invest in.

ONQ.

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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.

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.

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.

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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.

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.

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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.

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.

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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.

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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.

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.

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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.

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.