patrick.net

Dan8267 says

Gold is clearly a bubble just like housing was. And like all bubbles, it’s impossible to predict when it will pop close enough to profit from shorting it unless you have inside information. As John Maynard Keynes said, “Markets can remain irrational a lot longer than you and I can remain solvent.”

Depends on your perspective. Is gold in a bubble or is there a weaning of faith in the US dollar? Remember, the entire world runs on a fiat standard and it runs on faith and credit of the US Government. It would be prudent to watch what is happening to that.

Gold should be seen as an insurance against currency debasement. Plain and simple. It is not a loss when your gold is priced less in dollars, that means the dollars you own just increased in purchasing power.

Dan8267 says

That said, gold is riskier than housing because of two things. First, those who were serious about selling houses in 2007 when the housing bubble burst could have simply sell them for a modest loss. They choose to ignore the burst and thus suffered greater losses. When gold drops that won’t be an option because gold is far more liquid of an asset. That means that everyone can sell more easily and the price drop will be much quicker.

Do you sell your insurance? The reason you don't is because of future uncertainty. Same applies to gold, you don't sell it. You keep it because it protects your savings. It won't earn you any dividends, thats true but at least it won't lose purchasing power. It may even gain, depending on how crazy the governments print money.

It is a myth that gold tracks inflation.
It certainly didn't do that during the 80s and 90.

It goes up during the economical uncertainty.
And goes down during the normal time.

As long as the unemployment is 9+%, you don't have to worry about inflation.

xenogear3 says

It is a myth that gold tracks inflation.

It certainly didn’t do that during the 80s and 90.
It goes up during the economical uncertainty.

And goes down during the normal time.
As long as the unemployment is 9+%, you don’t have to worry about inflation.

In the 80s and 90s did you really have inflation in the US?
Look at the 70s. Since Nixon kicked us off the gold standard, the price of gold increased and peaked at around $800 an ounce in 1980.

The reason why gold price came down was because Paul Volcker raised the interest rates to a ridiculously high 20%. Dollars became very valuable and dear, gold came down. Think about this for a moment, does Bernanke really have this option to control inflation if it starts heating up the economy? Look at the US fiscal deficit/debt numbers and imagine for a moment what will happen when interest on this debt goes up!

The point is at the end of the day, gold performs well both during inflation and deflation. Gold was, is and will always be considered as a safe haven in times of economic uncertainty.

Note: I'm not saying gold can never be in a bubble, sure gold can get into a bubble phase when there is irrational exuberance about the metal. But we're far away from it.

Look at the chart in this link: http://truthingold.blogspot.com/2011/04/someone-please-explain-to-my-how-there.html

Only a tiny fraction of global investment money is in gold. When the masses start chasing gold, it will shoot the price to the moon. that's when we'll be in a bubble and its time to get out of gold.

state says

you mean when there are commercials for goldline on fox news and there is a gold buying store in every mall? and there are gold vending machines?

lol goldline on fox news has been on like forever..so i don't really look at that as a signal...I would be looking for signals just around me...so many people don't even understand why gold is the asset to be in right now..when everyone starts to 'get' the reasons and this tsunami of capital starts flowing into gold, it will get overheated.

there will be a bubble, but it is not right now. An excellent quote recently by a smart investor:

"The only gold bubble likely to burst is the bubbling ridicule of gold." - Don Coxe, BMO Financial.