Gold is Not in a Bubble

A good way to diagnose an asset class bubble is to listen to what the average man on the street has to say about it. Dr. Mark Faber, contrarian investor and author of the famed “Gloom, Boom & Doom Report,” described this effect in a May 2012 interview about gold:

People say the price of gold is in a bubble stage and it is up substantially from the lows in 1999, which was, at the time, around US$252 per ounce. But at the same time, we had an explosion of debt, not just government debt, but private sector debt, and an explosion of unfunded liabilities such as in the pension fund industry, and not just with Medicare, Social Security and Medicaid.

So now, 12 years after the gold’s low, we are essentially in a situation where maybe the price of gold should be much higher because the economic and financial conditions are worse than they were 12 years ago. I go to lots of conferences and I usually ask the audience: “How many of you own gold?” Normally, hardly anyone owns it. I’ve been to conferences with thousands of people attending, and nobody owned any physical gold.

I doubt we are in a bubble stage. When you went to an investment conference in 1989, everybody owned Japanese stocks. And in 2000, everybody owned tech stocks. That is the bubble, when the majority of market participants own an asset. I think there are more people that own Apple stock than gold.

The following video illustrates his point. The average person is clueless about gold. It is not in a bubble.

(HT EconomicPolicyJournal.com)



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    Gregory Cummings writes about Canadian monetary and economic policy. His writing has been featured at the Ludwig von Mises Institute of Canada and the Ludwig von Mises Institute's Mises Daily publication. Read more.

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