Gold Bears Continue to Contradict Each Other

While it’s always annoying when one’s investment moves in the opposite direction of fundamentals, I have not been the slightest bit worried about the recent correction in the precious metals market – and I credit the bears for my lack of anxiety.

We literally have the gold bears divided in half. Half of these critics claim that gold is in a “bubble”, while the other half claim with equal fervor that gold isn’t even in a “bull market”.

The bubble-bears have been led by Fortune. There is little sophistication to this argument: gold has gone up in value significantly, recently, therefore it’s in a “bubble”. There are two characteristics which must be present for an asset bubble to exist. First, and most obvious, the good/equity must be overvalued.

In that respect alone, gold fails the “bubble” test. A long-term chart of the price of gold, adjusted for inflation clearly illustrates this point. Not only is gold less than half of its all-time high, but the current move higher simply lacks either the speed or the magnitude to suggest an asset bubble. Keep in mind that the following graph uses the phony inflation number of the U.S. government. Using real data, the price of gold would have to rise to somewhere above $5,000/oz to equal its 1980-high.

Read more….