With the price of gold rising to record levels, and with those levels being broken on a regular basis, many people are wondering whether we are due for a major correction.
Well, there are always corrections after an extended rise in gold prices. Investors sell to take profits, and then buy again at the low point of the correction.
But beyond the occasional correction, I don’t believe gold has reached its peak yet. Not by a long chalk. Nor is gold in a bubble.
As we know from the real estate bubble, a bubble is when prices rise to a level where they are unsustainable, and beyond reason. This isn’t the case with gold.
Here is an interesting take on the subject, from Dr. Krassimir Petrov, an Austrian economist and an associate professor at Ahlia University in Manama, Bahrain.
“I have no idea how people could even claim that gold is in a bubble – barely 1 out of 100 people have any idea about investing in gold. During the real estate bubble, every second person was involved in it. Maria “Money Honey” Bartiromo has yet to report from the COMEX gold pits; gold fund managers and analysts have yet to obtain rock-star status; and glamorous models are not yet dating the gold guys. Who is the Henry Blodget [co-host of Tech Ticker] of the gold sector, do we have one yet?”
He makes some good points.
Also, consider the recent purchase of over $500 million worth of gold by the University of Texas Endowment Fund. That purchase stimulated a lot of talk online. But why? They are simply following the advice of most investment advisors – which is to hold between 5% and 10% of one’s investments in gold.
When every endowment fund, and every institutional investor, and every individual holds more than 10% of their investments in gold – that will be the time to start talking about a gold bubble.
In the meantime, there are plenty of reasons for the price of gold to keep rising: Political unrest in the Middle East and North Africa, economic worries in Europe, the falling value of the U.S. dollar, trillions of dollars in U.S.debt…and so on.
Don’t be worried about the occasional correction. Keep your eyes on the longer term, and keep buying gold.
You can buy gold coins and gold bars online at GovMint.com.
Thank you for your easy to understand explanation of the Gold Standard. I have never been successful when I explained this to so many people who do not have any idea about this. And also believe the “Fort Knox Fairy Tale”.
.