David Rosenberg asks the question: Is Gold a bubble?

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Gold Prices Relative to the S&P 500 (ratio)

click for bigger chart
gold spx ratio

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I am not sure the above chart is determinative, but it sure is interesting . . .

Category: Commodities, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

24 Responses to “Is Gold Really in a Bubble?”

  1. drey says:

    Well, Barry, since you asked…

    Not even close to bubble territory, IMHO, though I’m looking for a correction before an eventual sustained move to $2K. Then we can talk about bubbles.

  2. easystreet says:

    Bubble

    When we get to the point where we need to use gold to buy food because our currency is useless I think my shotgun will be worth more than your gold.

  3. rootless_cosmopolitan says:

    I would call someone a charlatan, if he wants to make me buy gold because of this chart. Claiming that one asset wasn’t overpriced by comparing it with another overpriced asset? S&P 500 P/E ratio in 1980: about 7 to 9. S&P 500 P/E ratio today: about 80. So normalize the S&P 500 index to its P/E ratio (or multiply the value in the chart with the P/E ratio) and the chart will look totally different.

    rc

  4. super_trooper says:

    This graph suggestst that S&P 500 was undervalued pre 1985 and overvalued post 1985. A more appropriate questiong could be, “Is S&P 500 finally reasonably valued?

  5. Fred C Dobbs says:

    There are lies, great big lies, and statistics. This chart proves nothing, and is only half-true: it should also trace interest rates. If it did, the two lines would be close. Which, if true, when interest rates go up, gold will fall. When it first became possible for the average Americans to buy gold, when they legalized the gold ETFs, the salesmen, in order to move their product, began to point out a fact that has been obvious for almost a century: the US has fiat money, and it is not all backed by gold. Scare tactics work. Get on the train that everyone else is going to pile on to, before it leaves the station. Hurry. In Cramer’s immortal words: BUY BUY BUY The fact is FDR made it a crime for Americans to own gold (anywhere world-wide), except for a few coins and jewelry, and prohibited clauses in contracts calling for payment in gold. The Chart begins where Nixon reversed FDR. If the price of gold begins to destabilize currencies, to interfere with the means and ends of the governing class and their technical monetary people, the world governments will have no choice but to ban gold. Do you want to be standing when they take the phonograph needle off the record? What are you going to do with a pound of gold that you have sunk your life savings into? Eat it? Drink it? Good luck sucker buying into another Wall Street story.

  6. investorinpa says:

    Somehow, I see this article making your reading list tonight BR… http://www.cnbc.com/id/33971461 CNBC report on how Hollywood employees are seeking employment in the porn industry.

    As far as gold goes, I always thought bubbles are characterized at the top by having every Joe & Jane investing in it. I know that if I went up to 100 people at a mall and asked them if they invest in gold, I would get less than 7 yes answers. (I’ve done this a month ago). A video posted here: http://contraryriches.blogspot.com/2009/11/stupid-americanoswont-pay-50-bucks-to.html shows a guy going to people on the street and offering them an $1100 dollar gold coin for 50 bucks, and the sheeple won’t even pay for it.

    So bubble? Not yet.

  7. Clem Stone says:

    Try replacing the S&P data with the cost of a 1 hour long distance phone call (on a land line).

    Or any number of other random apples and oranges.

  8. SFnate says:

    “A video posted here … shows a guy going to people on the street and offering them an $1100 dollar gold coin for 50 bucks, and the sheeple won’t even pay for it.”

    You can take this same video and interpret it as showing that gold prices are ridiculously overvalued. When jewelry sales are down, jewelry retailers can’t pass along price increases due to raw material price rises and the average Joe doesn’t want to spend $50 on a gold coin purportedly worth 20x that, then which value ($50 or $1100) is more “wrong”? If your argument is that only a select minority can truly discern the value of gold, which is otherwise scorned by an ignorant populace, then you’ve effectively placed gold in the same asset class as Beanie Babies.

  9. MRegan says:

    Hey gstream-

    sell signal (your view confirmed in big letters)

    Bank of America Corporation Acquires 5.07% Stake in Gafisa SA
    Friday, 13 Nov 2009 02:37pm EST

    Gafisa SA (Gafisa) announced that the Bank of America Corporation has acquired 6,780,788 ordinary Company shares, through several subsidiaries, becoming the holder of a 5.07% share in Gafisa.

  10. davossherman@gmail.com says:

    In 81 I was more worried about where and who to go parking with and what zit might pop than gold.

    But from what I read, interest rates rising and a renewed faith in Uncle Buck bought us back from the edge.

    Today, I’d consider it this way: Ben and Al’s printing has put us OVER the edge. Also, Max Keiser ran a piece here, at the 1:56 minute point http://www.youtube.com/watch?v=baXNLHj8xlQ&feature=player_embedded he blurts out that Alan Greenspan is buying gold.

    IMHO this reminded me of a funeral I went to where the son shoveled 3 scoops of earth on his relative.

    Uncle Buck and Keynesian economics are dead, Greenspan even realizes this.

    Bubble? No.

  11. Free Market Extreemist says:

    Big Time Bubble,

    Gold is a commodity – and moves in tandem with others.
    Check Gold to Silver Graph:

    http://www.zealllc.com/c2009/Zeal020609A.gif

    Gold is completely Overvalued.

  12. Brendan says:

    @easystreet – Haha, that’s a great quote!

    @investorinpa – I think you just proved the opposite of what you’re trying to. 7% of Joe Schmoes are invested in gold! That’s a huge number of people that really have no use for it! Outside of being a foreign exchange expert or a jeweler, practically the only reason it can be a good investment is if it’s a bubble and they sell before prices crash (which admittedly may not be for a while). Gold doesn’t pay interest or dividends, nor does it divide or become more valuable as it grows and becomes backed by infrastructure or talent. A block of gold can’t create wealth, only store it. It can only be advantageous to Joe Schmoe in the short term. You should have also asked how many were invested in diamonds or foreign currencies. If that number is lower, which I’m sure it is, then it isn’t about diversifying, it’s about buying into something they perceive as valuable and expect others to perceive as more valuable over time. In other words, people need to buy into the hype more-so than they buy into hype about other commodities. That’s the definition of a bubble.

  13. farmera1 says:

    OT (a little bit)

    A few days ago, Barry R. linked an article where Mark Faber was quoted as saying gold would not go below $1000/oz. I thought at the time that is so much BS, and not even good BS. Here is Faber’s re-ex-ex-plaining what he really said/meant:

    http://seekingalpha.com/article/173862-marc-faber-clarifies-gold-outlook?source=yahoo

    Marc Faber Clarifies Gold Outlook

    “What I said and also wrote in my last report is this:

    If the gold price breakout move above $ 1000 is real then gold should not decline again below the $950 – $1000 zone. Before, this range was resistance and now it should be a support range.

    However, if gold dropped below this range than I would be very concerned that a decline to around $ 800 could take place.

    I have consistently repeated that I hold gold and that I recommend the accumulation of gold.” FABER

  14. davossherman@gmail.com says:

    I heard on FSN in an interview with Jim Puplava and David Morgan that gold reflects a $4,000.00 price for every $1,000,000,000,000.00 they counterfeit via QE.

    By rights gold should be at 4-8k now and you could look at it globally with 5trillion of counterfeit it should be at 20k an ounce.

    I’d have to look, think it was Minsky that laid out the 7 steps of a bubble. I see no indications of any of those 7 last I looked this past summer.

  15. Eric Davis says:

    You have to also take into account the effect the cold war had on the gold bugs. You also have to think that there were quite a few years of “price discovery” once gold wasn’t used for money..

  16. Pat G. says:

    During gold’s first “bubble” experience in the early ’80s it hit an all time high of $850 an ounce. If we adjust for inflation since then, gold would need to be nearer $2200 an ounce in order to be in “bubble” territory again. Ask yourself this, if it’s in a bubble, why aren’t governments net sellers? They continue to pound the Comex with huge short paper contracts through their banking buddies while mom and dad pay a premium (spot price) at the local coin shop to take delivery. Again today, gold rose with the USD.

    My money is with mom and dad because deep down, they realize what these shysters are doing to our currencies. As I have been pounding this blog for months, it’s not only about the USD, it’s also about all the world’s currencies. Well, most of them that count anyway (G8).

  17. sickmint79 says:

    of course gold is in a bubble, just listen to everyone else repeating the same logic when gold was in a bubble at $400. and $500. $600 $700 $800 $900 $1000 and $1100. total bubble. why own gold when you can benefit from holding dollars and our strong dollar policy? we’ve made so many more of them than gold that it should be obvious to anyone that the large army of dollars would crush the pathetically miniscule amount of gold out there. strength through numbers baby. some fear the dollars will go crazy when they start multiplying but this is simply foolish. the fed has complete competence in soaking up excess dollars, just like everything else they do well.

  18. catman says:

    Markets as small as the gold market tend to go parabolic at the end of a trend. I look forward to such a move, but maybe not to its causes.

  19. kmckellop says:

    I think the more relevant ratio is the SP500 or DOW priced in money (gold)…looks like markets need a 50% haircut from here …at least.

    http://www.gold-speculator.com/attachments/mark-lundeen/5006d1256417080-bear-market-race-week-106-dow-gold-silver-s-domestic-international-performance-dc4bfwv3_1535cwcgg5ft_b.png

  20. Clem Stone says:

    They must have loved this chart in early 1988 too.

  21. arthur.i says:

    I haven’t counted but it seems that half these comments are adamantly sure that gold is in bubble land and the other half just as assuredly disagree. Hm mm…what does that say?

    If gold is going up I would buy it. If it is going down I would sell it. As Mr. Ritholtz has pointed out before – “optimism and pessimism are not investment strategies”…

    There is a whole lot of $$$ sitting around doing nothing. People do not trust Mr. Market, Mr Bank nor Mr. Government. What are they going to do with this cash? IMO, if there ever were a time and a reason to have a bubble in gold, now is certainly a possibility.

  22. Bors says:

    It seems the gold bugs are going to keep pushing gold until the governments take it away from them. I wonder why it is that instead of screaming for reform of the Fed and demanding a strong dollar and demanding this country to get its financial picture in shape and quit borrowing our way into collapse, every one in the investor class would rather go along with the gambling mentality of Las Vegas and spend their time figuring out ways to squeeze every little bit of profit out of a system that every one seems to understand that is going down and gambling when so to be able to get out in the nick of time. Get out to what is the big question. This must be some thing to do with the nature of the species that loves to be in crisis mode permanently.