Thursday, December 24, 2009

There Is No Gold Bubble

John Embry of Spott Asset Management writes as to why there is no bubble in gold:

"Today, the western central banks are discovering . . . that the
manipulation of the free market process ultimately fails"

Gold bull has many years, thousands of dollars to go

For at least the past 15 years,
Western central banks have
been flooding the market with
massive quantities of gold, pri-
marily by leasing it surrepti-
tiously to their bullion-bank
cronies. Ostensibly that portion
of their activities, which was
transparent (i.e., direct sales),
was for reserve diversification.
However, the real motive for
their behavior was to depress the
price of the yellow metal, there-
by reducing critical scrutiny of
their increasingly reckless mon-
etary policy, ensuring that inter-
est rates remained at low levels
and allowing the U.S. dollar to
retain its supremacy.
Accordingly, I find it almost
nauseating that various pundits
are currently referring to gold as
overpriced and in a bubble phase.
In reality, gold remains in a
stealth bull market that will have
seen nine consecutively higher
year-end closes at the end of 2009.
Despite this, it has attracted
very little attention from the in-
vesting public in general. The
dedicated goldphile has partici-
pated throughout and a number
of sophisticated financial players
have come on board recently, the
latest being the legendary trader
Paul Tudor Jones, but the average
investor remains blithely un-
aware at this juncture.
It is instructive to remember
that at the end of the last bull
market in 1980, people were lined
up around the block outside the
Bank of Nova Scotia in down-
town Toronto to purchase physi-
cal gold. Today, the only lines
that have formed are outside em-
poriums set up so the unsuspect-
ing public can unload their gold
jewelry for cash. To have a bubble
of any significance, there has to
be wide public belief and it cer-
tainly isn’t on display in the gold
market at present.
More importantly, ...

[More at the above link]

No comments: