WHEN WILL THE GOLD BUBBLE BURST?
“This working paper analyzes the gold price dynamics on the basis of methodology developed by Didier Sornette. Our calculations indicate that this dynamics is close to the one of the “bubbles” studied by Sornette and that the most probable timing of the “burst of the gold bubble” is April – June 2011. The obtained result has been additionally checked with two different methods. First of all, we have compared the pattern of changes of the forecasted timing of the gold bubble crash with the retrospective changes of forecasts of the oil bubble crash (that took place in July 2008). This comparison indicates that the period when the timing of the crash tended to change is close to the end, and the burst of the gold bubble is the most probable in May or June 2011. Secondly, we used the estimates of critical time for the hyperbolic trend (that has been shown in our previous publications to be typical for many socioeconomic processes). Our calculations with this method also indicate May – June 2011 as the most probable time of the burst of the gold bubble.”
(Courtesy of Alea)
When does the author expect the government bond bubble to burst?
I totally disagree! It is not a bubble!!! The world economies are all bankrupt especially the USA. So people are getting out of these fiat currencies and buying gold as well as other metals to protect our wealth. Gold is also going up because most of the worlds central banks are buying all the gold that they can get their hands on to back their currencies. The only country not doing that should be is the USA. They just keep printing and printing and printing!
Bob, almost everything you commented about gold is the same thing many other bulls are saying on the Net. Much of what you say is based on fundamentals, however I would be more cautious when we start to sound like an advertisement. Once there is a high percentage of people with a common belief, we need to try to detach our emotion and look at other perspectives.
–Don’t you think the governments knew that people would revert to buying precious metals to preserve their wealth?
–Don’t you think they prefer to NOT lose control of the people?
–Do you think they will allow the fiat currencies around the world to crash and those with gold will be safe while others will be out-of-luck, and have no back-up plan to regain control? A few law changes (which are already in the process) and gold will plummet.
If we think gold will sustain an upward gain, then the stocks will continue to decline with the rest of the housing market… and this will not continue on any longer than those markets had ascended. Money is being transferred, volatility has caused profits for those in power–and aware–it will cycle again.
I understand that the juniors need to take off and your barber needs to be buying gold before the it should be considered a bubble. Oh yah, the premium on 90% silver should be through the roof as well. Some believe that it will not come down; it will only flatten out.
your analysis is very amazing.
i am an astrologer and i watch and predict movement in gold astrologically.
in may 2011 a major combination of planets tell me that gold will fall like anything. this confirms your study,
i am amazed to see your good work
For those who don’t have gold, they will always say bad things about it. Similarly, for those who don’t have shares, they wish stock markets will crash. Gold will not drop much even there is a correction. Even if it drop by 50% from current levels, it will go up much higher soon. So just hold on to gold. 90% of my life savings is in gold. If I can hold on to my gold for another 10 years, I will be quite rich. Gold is real money. It is the king of money. It is sad that you don’t have gold, or much gold, Jaideep Singh.
Well, this line of thinking is dangerous to the prospects of gold rising for another 10 years…
Hi Jaideep , What does it fortell for Indian mkts ?
One thing that has added difficulty in assessing the strength of the gold bull market has been the concomitant rise in commodities. The commodities, which there have been various bubbles in the last few years, have blown out at one time or another. But gold has proceeded as a store of value. Nickel, Uranium, Oil, Wheat, we’ve pretty much have a run at them all. (the oil market corner burst in 2008)
Why? Because it has yet to fully adjust for inflation. Shadowstats maintains that $1673/U.S. per oz. is its 40-year inflation adjusted average. Commodities, by comparison will run ahead of and then behind inflation. The charts proposed in the paper are interesting, but not adjusted for inflation in the least, thus totally wrong. Yes, these math experts haven’t bothered to adjust for inflation in the attempt to gainsay the argument. Pretty cheesy.
Where then, would you obtain a good, objective forecast of gold when it has adjusted for inflation and then runs ahead of inflation, and how would you assess the life cycle of the bull market and under what conditions?
http://www.realterm.de/DAXinGold.php
nb. Use babelfish to translate.
What amazes me is the fact that theyre not calculating severe inflation into the equation, this isnt 2008, the truthe be told the markets are being held up by artificial injections of cash or digital cash, take your pick. Our greenback has added alot of weight since 2008 by 2/3. Sounds more like psychological manipulation to me. As for every Empire there comes an end as well as theyre rediculous Mechanisms for predicting the price of Commodities, something that should have a set floor, youre going to tell me that one day rice is 1 dollar per pound and next its worth 10. Only for the thieves on Wall st. that are steeling your money! As for the price of Gold and Silver,, drive the price down, Im looking for a bargain!!!
you cant have a bubble without joe sixpack involved. there may be a bubble at some point but not until you have amateurs buying gold. etfs are certainly making it easier and setting us up for one. Not until you go to a cocktail party and people are talking about how much they have made on gold, or you catch a taxi and the driver has the financial station on and is waiting for the latest gold price are you in a bubble. Bubbles require a complete shift in social mood toward an asset class and most importantly require complete public participation. Gold is not even offered in most 401K plans..yet.
Unfortunately, the authors live in a vacuum. We are only in the beginning stages of sovereign defaults and unsustainable debt and money printing to stymie a Great Depression II.
The bubble is debt which creates unknown currency volatility. Gold is just a simple measure. Bizarre that such smart people can’t do the same study to debt projections around the world including unfunded and measure a fixed fiat basket.
Funny piece. On the first glance – the authors are frevolously using 1982 years gold price to analyze current situation. They also using oil (also in 1982 dollars) in 2007-8 to prove the concept. No other asset class (even within commodities) is analyzed. The macro analysis in the beginning and in the end of the article looks incomplete and flawed to me, and is not connected in any way to the formulas used.
I would call this analysis inconclusive at best, but the approach (by my diletant opinion in quantitative methods) might be interesting. A commentary from somebody well versed in this type of analysis would be highly appreciated.
interestingly the author (Akaev) is the former “president” of kirgystan… being a politician probably disqualifies him a bit as a serious analyst though
still i m gonna buy some sep11 put spreads i think
TPC clueless as usual. Best indicator of gold is gold relative to money supply and its at all time lows, in the 80′s it got out of whack at over 100%. Gold can easily correct 10 20 30 40% but its still in a bull market for decades to come. TPC can continue holding govvie bonds.
The clueless person is the one who can’t even read the headline of the research paper and notice that the author is some russian guy.
The only reliable indicator of a trend in gold, up or down, is the price action.
Really? Is this the best you can do TPC to press your agenda? A paper from an unknown Russian backwater? Just plain sad.
Ah yes. That damn “agenda” of mine….I’ve said gold would rally for years now, but when I post something even remotely bearish written by someone else I am somehow the bad guy….
It seems that the many posters in defense of gold points to an emotional attachment. I’m flat now and have been so far. I’m readying to enter a large gold (miners) short position given the overzealous attachment and widespread retail investor attention.
Someone above noted that a bubble is not formed until you start hearing about the gains at cocktail parties and everyone gets involved. I’m seeing that right now across the board…
Hey TPC and GreedsGood… this is probably a stupid question to you guys, but how does one go about shorting gold?
1) Gold is Money
2) A “rising” Gold price simply reflects the devaluing of the currency you’re measuring it in.
3) There can never be a Gold bubble just as there can never be a dollar bubble.
4) Q: Why do central banks and Govt. all around the world hold Gold reserves? A: Gold is Money, it’s not a commodity.
Gold is a yellow metal that has no intrinsic value or industrial use other then the value applied to it. It is not money. It is a yellow largely useless metal. It is amazing that people, and Governments, still think otherwise. That makes it a perfect bubble in my eyes.
It makes perfect sense that the Russians would trot out a group of academic stiffs to badmouth gold with some supposed scientific mumbo-jumbo. Gee, those mathematical formuli are so impressive, I’m convinced! If I had lots of gold, I would surely sell it for more of those wonderful FRN’s.
Like the Chinese, the Russian government knows all too well the value of real money and the inevitable fate that awaits many, if not most, fiat currencies, particularly the good old American buck. Besides, the Russians have been right where us Americans are headed, and they know all too well what happens to your currency when your entire nation’s economy implodes.
While the Russians, Chinese and so many other countries are frantically acquiring mass precious metals, by any and all means, we brainwashed and washed-up Americans are buying and consuming as much Christmas crap as our various credit cards will allow, and that don’t include physical gold or silver.
Atleast, not for most anyway!!
Notice that those that miss out on bull markets, are constantly talking about bubbles on the bull markets they missed out on. Also notice how many gold bubble articles there are. They’re everywhere. Incidentally, according to thestreet.com poll, there are more people bearish on gold than any other sector.
http://www.thestreet.com/stock-market-news/10603675/poll-bull-or-bear.html?kval=dontmiss
As I commented in a posting a few weeks ago, I guess I don’t understand how people come to the conclusion that gold is in anything like a bubble situation thus far. Maybe in the late 1970s, but now? If you look at its chart, it looks like it is in a bull market, for sure, but it also has very noticeable corrections along the way. Those corrections happen every time it starts to go parabolic, something I wouldn’t expect of a bubble.
I can definitely see gold becoming a bubble in the future, if a lot more people become oblivious to its volatility and in their exuberance decide it can only go up up up, and they had better buy now to catch the wave… But does that seem like anything we have observed this past decade? If one thinks of gold as a stock and divides its price by 100, does an $8.00 stock in fall 2008 which has now climbed to a $14.00 stock now sound extreme or bubbly? If that is bubbly, what do we say about a large number of stocks that have appreciated by a much larger fraction since fall 2008 or spring 2009, or of the favorite stocks of momentum “players” since the beginning of this year?
How many people have you heard say that gold is way overpriced (and saying it since at least $900/oz), that it is a crowded trade, that it is a barbaric relic with no “real” value since you can’t eat it (as though you could eat paper money…), that it is like a house of cards just waiting to fall, and so on? And yet, how many people do you or I know who own gold in any quantity, compared with those who merely talk about gold? None of that sounds like a bubble situation to me. I guess I don’t “get it.”
One thing must be admitted – the gold price movement is like the one of a bubble. The question is – is this a reflection of the monetary fiat currency bubble in which we live (e.g. gold the ultimate reserve asset) or is gold just one of the bubble markets that will burst.
In 2008 it first acted as just another bubble, but quickly resumed the reserve role and reached new all time highs. So a probable sell-off together with other risk assets + relative outperformance afterwards is quite likely and still possible.
yup. gold WILL crash a few times this YEAR-2011, early may sept, and again in nov.
a week or two each time.
but it is STILL a ‘bull’ until 2020.
long bought all gold @655.00….way way back….but I WILL sell in april and go long silver/uranium while gold drops…i think there’s more up in that, gold a place to STORE yer bucks, ala the new way (for me) to hold cash.
Sorry guys, this is freshman Calculus 101 and amateurish at best. These are economists posing as mathematicians (or vica versa). The authors don’t take into account these aspects of precious metals:
1) medium of exchange
2) form of hard currency
3) store of value.
In other words, gold is not oil.
It also doesn’t take into account the accelerating debt issues on a global scale, and central bank monetary and balance sheet monstrosities. Will gold and silver correct in the spring? Perhaps, as it usually does, and a nimble (and lucky) trader may sell in March, hoping for a better price in late summer. But for those selling their core, non-trading positions will regret selling as long as sovereign central banks debauch their currencies.
And for those predicting a top in gold since $300 9 years ago: read the scoreboard.
Surely there are better inflation hedges. Copper, Oil etc.
I suspect that depends on what inflation scenario you are thinking of. Commodities like you mentioned are consumed, so they are sensitive to economic activity. I would think stagflation would not treat consumable commodities nearly as kindly as precious metals, especially gold, which serve an important role as “money” or “store of wealth” in uncertain times. (Yes, it’s ultimately all about perception, but perception plays an important role in the price of pretty much everything one might trade.) Think of the late 1970s…
I remember following Sornette’s stock market predictions in 2003. He mapped out beautiful forecasts of the stock market’s collapse but unfortunately, they didn’t work out. He was mapping an imminent price fall of the SP500 to around the 600 – 700 point at the time when it turned around and went the other direction. He pointed out, though, that someone had mapped out the SP 500 priced in German marks (I think) and it followed the predictions exactly. The point was made that US money printing had interfered with the predicted price level of the SP 500.
I heard awhile back that the rise in gold is more a reflection of the debasement of the US dollar since gold had not shown the same price increase in say, the Australian dollar. And now that it is rising across the board, it is supposed to be a reflection of the beginnings of currency wars.
What to believe? Here in the US, the general population is not talking about gold the way they were about dot.coms or housing. However, given the state of the US economy and the hit most Americans have taken, perhaps the hairdressers here are not the hairdressers who matter anymore. The one thing I keep looking at, though, is the gold chart in the above article. It looks pretty parabolic. And it started at right about the time GLD entered the scene, opening the market to serious speculators – speculators who jump in and out of markets at a keystroke. http://www.bloomberg.com/news/2010-12-20/soros-gold-bubble-at-1-375-has-miners-push-every-button-in-tale-of-tears.html
A poorly constructed study to say the least.
The fundamentals of a good study aren’t there.
The content is therefore suspect.