If you peruse what the "mainstream financial analysts" are saying, you may have run across this over the past week. Yes, that's right, there have been several warnings out that the $US Gold market is in a BUBBLE" situation. We have seen some very amusing analysis in our time, but this is REALLY funny.
Allow us to quote something which used to appear in this analysis back in the days when Gold was still firmly entrenched in defining its bottom. Longer-term readers of these pages might well remember it. We called it:
"The Gold ELBBUB"
That's right, got it in one. What's the opposite of a "bubble? An "elbbub", of course. And that is precisely what Gold was in, until it finally broke above $US 300 at the end of March 2002.
The term "elbbub" seemed particularly appropriate to describe Gold's long sojourn (1997-2002) below the $US 300 level. For one thing, it took a lot of effort by the financial powers that be to get it down there and keep it down there for so long. For another, Gold was being kept below a level it had not breached (except very briefly) for the previous EIGHTEEN years (1979-1997). And then there was Gold's singular (ok, Silver too) claim to fame as being the only investment vehicle which the financial powers that be did NOT want to see rise.
Imagine, if you can remember that far back, what happened to the Dow when it was first starting its LONG bull market back in August 1982 - at a level of 776 points. For the previous SIXTEEN years - way back to 1966 - the Dow had repeatedly challenged the 1000 level only to fall away again. By the end of 1982, the Dow was challenging it again. In fact, by October/November 1982, the Dow was challenging its all time high.
Now here is a fact. Back in late 1982/early 1983, as the Dow was challenging and then surpassing its all time highs, many investment analysts warned about a U.S. stock market "bubble". It seems ridiculous now, we know, with the Dow still within shouting distance of 10000, but it didn't seem ridiculous then.
Why? Because the Dow was breaking above a CEILING that had held it back for SIXTEEN years. Gold, on the other hand, broke through a $US 300 FLOOR which had supported it since 1979 in November 1997. As soon as it established itself back above that floor in April 2002, an undercurrent of talk about "overbought" Gold began. And when Gold rose to challenge its previous peak during that long sub $US 300 odyssey - the $US 330 level briefly touched in Sept/Oct 1999 - the talk turned to caution about a Gold "bubble"!?
Let's put this in perspective. In 1982/1983, at levels between 1000 and 1200, the Dow was setting all time highs and had broken above a SIXTEEN year CEILING. In 2002, at levels between $US 300 and $US 330, Gold is breaking above an EIGHTEEN year FLOOR. Gold is not threatening its old high. On a closing price basis, that was $US 850 set in January 1980.
Can you spot the difference? The investment "analysts" who are talking about a Gold "bubble" can't.
Or maybe it was just a "scare tactic" to go along with the "hit" on Gold which took place on Wednesday, June 5 (when the spot future Gold close fell $US 6.60 from $US 327.80 to $US 321.20). It was reported that some "fund" sold 5000 December futures contracts on "ACCESS" (the Comex electronic trading system) AFTER Comex had closed on June 5. Another report states that the sales were 2,000 August and 3,000 December contracts between the COMEX close and the opening of Gold trading in Tokyo. Common to all reports were the facts that the sales were done using "ACCESS", they were done OUTSIDE of regular market hours, and that the seller preferred to remain anonymous, as allowed for by the ACCESS trading system. How convenient.
The financial powers that be must hope that they are dealing with children. The mouthpieces are talking about a Gold "bubble" and Gold is being hit in a most ham-fisted way. What has gone on this week will fool very few, as witness the fact that Gold regained more than half of its June 5 losses the very next day.
But we must admit that we got a great laugh over reading about the "Gold bubble" this week. Hope you did too. No less an authority than Alan Greenspan was recently quoted as stating that it is impossible to recognise an investment "bubble" until after it has popped. The implication is that what happened on June 5 was the prelude to the Gold "bubble" popping.
The Dow was deemed a "bubble" at just over 1000 in 1982. It went to just under 12000 in 2000. Gold has been deemed a "bubble" at just over $US 320 in 2002. Now what? Stay tuned.