For all the talk of a gold bubble, this chart paints a different picture. As someone who lived through the tech bubble of 1998-2000 as a tightrope shortseller, until I see Maria Bartiromo breathlessly (orgasmically, in all honesty - she was an internet analyst shill) scream the latest Wall Street price targets for gold from the NYSE floor, then there is no comparison. Gold could easily correct back to $1550 in a week or less, but it's not a bubble. Priceline, Redback, Stamps.com, Microstrategy, Digital Island, F5 Networks, Covad, JDSU and dozens more were unfathomable bubbles that cratered from hundreds of dollars per share to less than $5 in each case, and deservedly so. Gold might be over-valued, but it is does not deserve the exaggerated label.
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Bubbly Gold Might Take A Bath
Is there a gold bubble?
In one respect, gold always is in a bubble. An inert metal in every sense, gold has no intrinsic value as an asset so buyers focus primarily on its resale value. This search for the greater fool is characteristic of bubbles. Yet gold having accelerated this year, the question of whether it is now too expensive takes on new urgency.
Compared with other bubbles, gold's rise actually looks tame. In the 10 years leading up to Aug. 22, when gold closed at a record nominal peak of $1,888.70 a troy ounce, the price had risen 587%. In comparison, crude oil rose almost tenfold in the decade preceding its all-time peak in 2008. But neither hold a candle to Nasdaq: The index climbed more than 2,000% in the tech-crazed decade that ended in March 2000.
Justifying further gains on the basis that we don't yet seem to have lost our marbles to quite the same degree as last time isn't terribly convincing, though. Other comparisons provide similarly unclear results. Deutsche Bank calculates that, in real terms, gold has surpassed its 1980 peak when adjusted for both U.S. producer and consumer inflation. That suggests the price is extreme already. On the other hand, Deutsche also reckons gold compared with the price of oil or the S&P 500-stock index suggests scope for a move toward $3,000.
Continue reading at the WSJ...
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Video - Warning - Don't watch this if you're easily offended.
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CHART - Inflation Adjusted Gold Price (1970-2011)