Is Gold a Bubble in Waiting?

February 23, 2009 | By | 3 Replies More

As expected spot gold pulled back from over $1000 an ounce by Fridays’ close as some nervous speculators took profits off the table before the weekend.

Gold pundits are becoming more and more bullish about the metal with each passing day. It is, after all, about the only ray of sunshine in otherwise cloudy markets.

This raises the spectre of gold bounding ahead of itself as investors of every ilk jump in hoping to outguess the market by getting out at the top with a handsome profit.

Doesn’t that remind you of the bubble scenarios that have been playing out in the last six years? It should! Extreme caution should prevail or, like lemmings leading each other over the cliff, many, and usually those who can least afford it, will lose their shirts if gold is a bubble in waiting.

Actually, we at Precious Metals believe that there is considerable justification in believing that gold will settle, for a very short time somewhere between $1500 and $2000 an ounce before the end of 2010.

By then the ‘green shoots of recovery’ will be showing and then there will be some fantastic profit opportunities for stock pickers as companies with strong balance sheets and necessary products regain their true values.

By the time this happens the world will have a pretty good idea about how bad inflation has become and which major currencies have suffered the most. The outcome of the bailouts and over-worked money printing presses will determine the price that gold will settle at.

The worst the inflation the higher the price will be that gold will revolve around. The unknown factor will be the effect of shift in sentiment away from the metal to more profitable opportunities in the broader market place.

As it happened the political movers and shakers did not have anything much original to say over the weekend, just a rehash of last weeks old news, with the principal item on both sides of the pond being governments intentions about nationalising the troubled banks.

In many quarters nationalisation is still a dirty word, particularly in the UK where previous labour administrations managed to wreck the nations’ finances and industry with wholesale nationalisation a key strategy in their ill-conceived policies.

So has anything changed?

What we expect to see is nationalisation in all but name only. If past experience of political interference in key strategic industries and finance by left wing politicians in the UK are anything to go by, then please let the gods help the USA if Obama and his democrats follow this path to the country’s ruin and eventual oblivion as the worlds’ super power!

European trading this Monday morning has seen spot gold recover from below $982 an ounce to over $990 an ounce, indicative of underlying strength in the price.

There is a reasonable expectation that this week will see the price sustained above the $1000 an ounce level as it gathers strength for a further rise.

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Category: Gold

Comments (3)

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  1. Ron says:

    Let’s face it guys. The old school is done. What good is this metal really chuncks of noble metal sitting on a shelf doing absolutely nothing. Buying this high some peolple will get burned hard and fast. Remember the Bre-X days. When the american dollar turns down gold will come. You be the judge what do we need it for anyway. They said it would go to $2000.00 and it is not there. Peolple are buying on speculation only and not logic face it. You should not be promoting as hard as you do because peolple are going to get burned. Thanks

  2. Eugene Liu says:

    Hi, I am very interested and looking to invest in gold bullion and gold coins. All of the sights that I have read tells me about ‘buying gold’. What about when the time comes for selling my investments? What price difference between ‘buying’ and ‘selling’ at one time?
    Regards
    EL Australia

    • Hi Eugene in Australia.

      Thank you for your question.

      To deal with gold bullion first, you must ask yourself whether you wish to hold the physical metal in your own keeping, that is at home or in a safety deposit box, or in a secure gold depository.

      You will be aware of the risks associated with the former so, to get to the point of your question you will have no choice but to sell all or part of it to either to the bullion dealer you bought it from or another dealer.

      That dealer will take a turn that is a discount on the spot price, on the transaction, that will reflect the prevailing market conditions for trading physical gold.

      This can vary but in general terms is likely to be more expensive than the other option we are about to suggest. A further complication arises if you want to sell part of your bullion holding.

      If, for example you own a 20 ounce gold bar but only want to sell 10 ounces, then you have an added and very expensive problem to solve.
      Our suggestion is that you go to http://www.bullionvault.com and explore the site. They will sell you any amount of gold bullion from a gram upwards and store it for a small charge in their vaults in Zurich, London or New York, whichever you choose, Zurich is our preference for reasons discussed elsewhere on our site.

      The important factor here is that you can buy or sell all, or any other smaller amount of your holding, immediately at the price on the board or put in a sell/ buy limit order at your preferred level. Also you can monitor the price movements as they occur with their charting facility.

      Gold coins are a very different matter and we do not pretend to be experts on the subject. We would only point out to you that there are two very different markets here, the first being the collectors market where rare and vintage coins are dealt in by experts in the field and bear less relation to their gold content but more to their rarity value.

      Our advice is to stay clear.

      The other is for fresh or recently minted coins where the gold content is the only criteria for evaluating worth. These coins can be easily bought direct from their mints in various parts of the world or from coin dealers.

      The problem exists when you wish to sell, for it is then only coin dealers that provide the principal market place (eBay is an alternative but…). The positive side to buying these coins is that they are easily stored, transported and sold as individual units. They should only be bought as a long-term investment, and are way down the scale as viable short term speculative trades.

      Dealers have substantial overheads so expect to pay a premium over the spot price when buying, particularly in the last few months when the mints have been rationing dealers orders, and conversely a discount over the gold spot price for selling, again depending on the day to day supply and demand situation.

      The other, almost, direct exposure to gold bullion is through a gold backed ETF that can be dealt in exactly the same way as any publicly quoted stock or share. Take a look at Streetracks Gold Trust (GLD-NYSE) the worlds largest gold backed ETF.

      If you live in Australia and have difficulty in finding a cost effective broker to deal on the NYSE go to http://www.optionsXpress.com. This is an easily navigated U.S. on-line broker that gives an excellent service at a ‘one size meets all’ low dealing charge.

      Better still it is easy to open an account with them if you live outside the U.S. We know as we live in Europe.
      We understand that this is not directly relevant to your question but may we advise you to consider very carefully the AUD/USD forward exchange rate situation and its implications.

      We hope that we have answered you query and wish you ‘good investing’.

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