Posted: July 22, 2010 in Gold, Investing, Precious Metals

Sometimes as investors our biggest weakness is over thinking.  When we hear the media discuss gold the typical debate is whether or not gold is a bubble.  The answer to that question without any doubt in my mind is no gold is not a bubble.  Will gold ever become a bubble?  Yes gold will become a bubble at some point, but we are not close to bubble status. 

When will you know gold is a bubble?  You will know gold is a bubble when everyone you know and their brother is buying gold, talking about gold as being the greatest investment etc.  Think of the recent housing bubble, that should be fresh in your mind.  We new housing was a bubble when everybody and their brother said housing was the best investment, housing will never go down, etc.  In other words it will be obvious. 

If you ask everyone you know if they own gold I would bet 80% would say no, 10% would think they own gold through an ETF  and the remaining 10% actually owns physical bullion.  Those are not bubble numbers. 

Below is a chart that will show what a bubble looks like from a technical perspective:


Currently gold is in phase 2.  The public is aware of gold and gold conversations are becoming mainstream.  Smart money is not exiting gold.  We are seeing funds focus more on gold and gold investments.  In fact there are funds that are designed specific to gold such as John Paulson’s fund where his largest holding is the GLD. 

Below you will see a five-year Gold Chart vs. Bubble Chart:



You can clearly see our gold chart above looks nothing like our chart describing a “bubble”.  We see a nice steady climb clearly showing gold is in a defined long-term bull market.  Nothing resembles stage 3 known as the “Euphoria Phase” as described in our first chart.  From a technical point of view this chart looks great.  In fact if you extended the gold chart to ten years it would look much better.

Now let’s do some comparisons of gold vs S&P, DOW and US Dollar.  When you look at these charts think to yourself where do I want my money.  The answer should become obvious. 

Comparison #1 Gold VS. DOW   



 Comparison #2 Gold VS. S&P



Comparison #3 Gold VS. US Dollar



Do you get the picture?  If you do this same comparison with 10 year charts it is even more obvious. There is no doubt in my mind that gold is not a bubble.  In fact gold from a technical point of view gold is more conservative than the S&P, DOW or US Dollar. 

Moving forward based on Big Ben’s testimony it looks like the Fed will move into Quanative Easing Part 2.  The Fed clearly believes creating money out of thin air is the best solution.  With that said the gold chart will become more of a defined uptrend.  It is difficult to predict what the markets will do with QE part 2 but we can predict the dollar will ultimately go much lower. 

When the purchasing power of our savings diminishes we can thank Big Ben!  Thanks Ben!









  1. K says:

    You state: “When will you know gold is a bubble? You will know gold is a bubble when everyone you know and their brother is buying gold, talking about gold as being the greatest investment etc.”

    I have been on the sidelines wanting to purchase silver for awhile, but from your definition above, it would seem if you replace the word “gold” with “silver”, we’re basically in a silver bubble. Everyone is touting silver as a sure bet, which I agree it basically is! (See I’m one of them)…

    In any case, I am hoping we get that drop in Silver over the next month so I can purchase some around $17.00/oz. I’ll be watching closely.

  2. yourhedge says:


    Thanks for your post. I agree silver is a buy. The people I see touting silver as a fantastic investment are people closely following recent CFTC hearings, people who understand silver is in short supply, and people who understand silver is highly leveraged by the bullion banks.

    I rarely hear anyone on CNBC or in my personal life discussing silver being a great investment opportunity. The truth is I believe the next leg up in precious metals silver will lead on a percentage basis. Silver in my opinion is a no brainer.

    Living in Vegas during the housing bubble literally everyone I spoke to thought buying a house was the greatest investment of all time. Everyone was buying a house or trying to buy a house. Houses had multiple bids and homes would gain $10K of equity value in a month. There were lotteries at new lots and people camping out to put in an offer. Nothing insane like what I mentioned is happening in gold or silver. We have plenty of time. I believe we are in phase 1 with silver. Good luck.

  3. K says:

    Picked up 500 oz of silver eagles today. Figured even if silver is manipulated down another $1.00, or even $2.00 from here, I’m glad to officially have my starter position. The window for buying cheap is certainly closing.

  4. Nice story, although the last part is a bit dubious in my eyes. I do hope to see more of this, but how can I stay updated with your posts? Best regards from Holland!

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