2011 April 05 | timiacono.com

The Gold Bubble that Just Won’t Pop

The gold price reached a new all-time high today at $1,457 an ounce and most investors are probably just shaking their heads at the craziness of it all – who in their right mind would pay almost $1,500 for a dumb ‘ol one ounce gold coin? Of course, they were shaking their heads at $1,200 an ounce, $1,000 an ounce, $725 an ounce, $500 an ounce, and so on, calling it a bubble ever since the price started rising about ten years ago when you could have bought the metal for about $300 an ounce. That’s one tough gold bubble…

In Frank Holmes latest commentary over at U.S. Global Investors, he explains some of the reasons why the current gold bubble just doesn’t seem ready, willing, or able to pop, the chart below offered up as evidence that, in a world full of increasingly suspect paper money and paper assets where more investors are looking for something other than dodgy paper, the yellow metal remains under-owned.

Citing a recent presentation by Eric Sprott of Sprott Asset Management, Holmes notes that new investment in gold over the last ten years totaled about $250 billion versus almost $100 trillion that went into other financial assets over that same time. That’s not to say that, as a percent of all assets, it will ever get back to the levels seen prior to 1990, but, based on everything that’s been happening in the world lately, it’s certainly headed in that direction.

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The outlook gets more grim in the latest survey of aspiring Baby Boomer retirees, a full 25 percent now discounting the entire notion of a conventional retirement, in no small part due to the fact that they have little or no retirement savings and don’t expect that situation to change anytime soon. Details are in this story at the Associated Press.

The 77 million-strong generation born between 1946 and 1964 has clung tenaciously to its youth. Now, boomers are getting nervous about retirement. Only 11 percent say they are strongly convinced they will be able to live in comfort.

A total of 55 percent said they were either somewhat or very certain they could retire with financial security. Yet a substantial 44 percent express little or no faith they’ll have enough money when their careers end.

Excluding their homes, 24 percent say they have no retirement savings. Those with nothing include about 4 in 10 who are non-white, are unmarried or didn’t finish college.

At the other end, about 1 in 10 say they have banked at least $500,000. Those who have saved at least something typically have squirreled away $100,000, with about half putting away more than that and half less.

It would be interesting to see what that “Money from the sale of your house” response in the graphic above was five or six years ago. My guess is that the “Extremely/Very Important” response would have been some multiple of the current 17 percent.

I’ll never forget that time back in about 2006 when I raised the possibility of home prices falling significantly with my dentist as he was about to put both hands in my mouth. He pulled back and said, “They better not. My retirement is depending on it”. He’s probably had to rethink his golden years at least a little bit.

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Marc Faber on QE3, QE4, QE5 until QE26

Here’s that Bloomberg interview from late last week with Marc Faber in which the Gloom, Boom, and Doom publisher ruminates on the future course of Fed policy as it relates to the stock market. Skip to about the 3:45 mark to hear, “My view is that they will do QE3, QE4, QE5 until QE26 – until the whole system breaks down”.

What’s funny about where we are in the current cycle is that so many money managers expect some kind of a correction in equity markets in the months ahead and, then, when stock prices go down by 10 or 15 percent, that the Fed will start talking about the need for QE3 that will begin another leg up. Is it really that simple? Buy the next dip?

Tuesday Morning Links

MUST READS
Debt ceiling to be hit by May 16 – CNN/Money
China ups rates 4th time since October – Reuters
Moody’s downgrades Portugal on bailout fears – MarketWatch
Dow index hits new multiyear high, and so does oil – LA Times
Bernanke Applies the Pudd’nhead Principle to Markets – WSJ
Fed Analyst Fired After Asking Questions – Jr. Deputy Accountant
Is Bernanke thumbing nose at critics? – MarketWatch
Fears for global recovery as oil hits $120 mark – Telegraph
Poll reveals baby boomers’ retirement fears – AP
Is Inflation Harmless or Even Good? – Mises
The GOP Path to Prosperity – Ryan, WSJ

MARKETS/INVESTING
Oil near $108 amid Libya fighting, strong demand – AP
Gold dips to session low after China rate move – Reuters
China should increase gold reserves: J P Morgan – Commodity Online
Three rules for fighting inflation in your portfolio – MarketWatch
Oil Market Speculation Argument to be Tested by WTI Rollover Cycle – EconMatters
Definitively no bubble – gold price could double over next five years – Mineweb
Is the Silver More Valuable in a Silver Closed-End Fund or a Silver ETF? – CNBC
Sprott Physical Gold Trust Announces $300 Million Follow On – Zero Hedge
David Einhorn’s Greenlight Down 2% in March – WSJ
Some circumstantial copper evidence – FT Alphaville

ECONOMY/WORLD/HOUSING/BANKING
Take This Job and Shove It – The Burning Platform
Wages fail to keep pace with price hikes – Washington Post
Goldman Sachs: Three Reasons We Chopped U.S. GDP Estimates – WSJ
Are Americans At The Breaking Point? – Decline of the Empire
UK Households sink under a sea of debt – Telegraph
Saudi Arabia Keeps Wary Eye on Domestic Inflation – CNBC
Feeding the Australian housing bubble monster – Business Spectator
UK Homeowners Expect Gains of 2.8% Over Six Months – Bloomberg
Will Home Price Warranty Restore Confidence? – CNBC
Fed Not to Blame for Rising Commodity Prices, Paper Argues – WSJ
Fed’s Lockhart says recession has altered consumers – Reuters
The Fed Undermines Foreign Policy – Ron Paul

 
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