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October 2022
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some facts about gold

In reading Campbell Harvey’s research on gold, I thought the following 3 charts were most interesting.

1. the real price of gold in the last 200 years

real price of gold 200 years

– the current period of price surge of gold has been extraordinary, even dwarfing the gold bubble in late 1970s.  The #1 fact to bear in mind is gold price will eventually tumble in a very big way – it’s fool’s game that you think you can time the market.

 

2. how the gold price is related to real interest rate

gold price and real interest rate

– in my mind, I always think real interest rate plays a bigger role in determining the price of gold than any other factors, incl. inflation.

 

3. three elasticities of gold price: a. jewelry demand; b. investment demand; c. technology demand

gold price elasticity

– jewelry demand responds negatively to gold price: as price increases, fewer people can afford it in countries like India and China, where gold jewelry is popular.

– the waning jewelry demand is more than offset by increasing investment demand, especially in the age of ETFs.

– technology demand (or rather supply) responds to gold price very slowly due to the fact innovation in mining gold takes time, but eventually it will catch up.

 

Platinum Super-attractive to Gold

Both precious metal, the current relative valuation of platinum vs. gold makes platinum a better bet than gold.

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Gold bubble goes on…

When you see the gold promotion video come out that is geared toward the mass audience, such as the one below, you know gold bubble has entered another stage.

Until the Fed dramatically reverses its easy monetary policy (i.e., when the real interest rate turns positive and rising), gold price still has several legs to go. But be head clear that the gold bubble will eventually crash, just like every asset bubble. Timing in investment is utterly important.

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Gold bubble forming

I have been bullish on gold since I expected the Fed could never get the timing of exit (from the current easy monetary policy) right.

With another round of money-printing or QE2 from the Fed, gold price has been soaring in recent weeks.  FT compares the surge of gold to the past asset bubbles.  The crude comparison seems to indicate that gold is now in its early bubble-forming stage.

(click on the graph to play)

Like every asset bubble, the time of reckoning will eventually come. It’s fool’s game trying to get the timing right, however.

Now it has become more clear that the Fed’s super easy monetary policy is in the process of creating at least two bubbles in the world – first the gold, second is the bubble in emerging markets – remind me of Latin America crisis in 1990s.

Gold hit another record high

Gold at $1269.

(click to enlarge)

What’s behind recent move?

Why is Gold investor’s darling in current environment? ABC News reports:

My yardstick to judge whether gold is in asset bubble:
1) when everybody is buying, even your trash collector neighbor;
2) when everybody tells you, “This time is different”.

We are nowhere near that point. Not yet.

Jim Rogers on dollar and gold

Rogers thinks US dollar is due for a short-term rally and that means gold will enter a consolidation stage. His long term prediction of gold price stays firm: it will at least increase to a couple of thousand dollars.

He is a true contrarian investor.

Is gold in bubble yet?

Not if most common people even don’t know what the gold price is today. Bubble needs herding behavior: when everybody is rushing to get in, that’s where the gold bubble is about to burst. We are far from there.

Gold passes $1,200

Gold just passed $1,200 per ounce.

Gold’s rise has support from fundamentals, but every time you see parabolic move, the bubble is forming. One of the key lessons for investors is “bubble has legs”, it will eventually burst, but nobody knows when.

In 2008, we had “mother of all bubbles” —oil price shot up to $147 per gallon. In 2009-10, we may well have another greater bubble, the gold bubble: $2,000, anyone?

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