Beware Fortune’s Gold Warning

It was hardly a surprise to see a Wall Street mouthpiece come out with an anti-gold attack on the day that gold reached a new, nominal record-high. What is a surprise is how utterly pathetic was this counter-attack.

For those that missed it, Fortune magazine put out a piece yesterday titled “Beware the Gold Bubble”. The only piece of accurate analysis in the entire piece completely refutes the title to the article. There are two components to an asset-bubble: highly-leveraged debt and (obviously) a high asset-price. The gold market does not exhibit the slightest sign of either of those characteristics.

Even the first paragraph of this piece of trash refutes its own premise:

Signs of gold fever are everywhere. TV commercials scream “Sell your baubles, prices are reaching the sky!”

How stupid can Fortune magazine get? When “fever” sweeps a market, people are buying in, not selling. In fact, what those TV commercials “scream” to the masses is “gold is over-priced, sell while you have a chance!” For Fortune’s assertion to be correct, we would have to see widespread advertising encouraging people to buy gold. In fact, while investment has surged, only a tiny percentage of investors hold any gold or silver in their portfolios – and there has been no mass-advertising of any kind in North American markets.

As Fortune, itself is forced to point out, adjusted for inflation the price of gold would have to rise to over $2,000/oz – just to equal its high from 1980. And that is using the phony “inflation” numbers of the U.S. government. Plug in real inflation data and the price of gold would have to surpass $2,500/oz to equal the previous high.

Can anyone list any other asset-class currently trading at less than half of its 1980 price? Obviously gold remains one of the most under-priced asset classes on the planet (with silver being the only cheaper commodity). It is a tautology that something which is under-priced cannot possibly be “in a bubble”.

The second requirement for an asset-bubble to exist is lots of leveraged debt. However, the stingy bankers are only providing leveraged financing for their own bets in their private casino: the derivatives market, as well as their own, in-house trading. There is absolutely no evidence that there is any leveraged debt in the precious metals market.

 

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