I know that people usually enjoy investing as others do. In general, people like following what other people do. But this is how bubbles are created. And “people” don’t seem to learn from their mistakes, this has been repeated over and over again. While the same “people” are very concerned about a housing bubble in Canada, they don’t mind as much about the craziness about gold investment. So maybe I am stupid, but I don’t think that investing massively in gold is a good thing. What if there is a gold bubble?
Why gold is going up so fast?
The price of Gold is increasing so fast for many reasons, to make it simple, here are some of the majors reasons:
– People are afraid by the HUGE debt in the USA and therefore prefer gold to the US dollar
– China has too many US dollars, so they hedge their position by purchasing gold
– Same thing in India, they seem to like gold too
– The price of gold is going up while the interest rates of CDs and bonds are going down
– For a weird reason (weird because gold has similar volatility as the stock market), people trust the value of gold
– Then, the smart guys on Wall Street are speculating on the price of gold
Buy why gold would be different than other bubbles?
I don’t get it. In order to have a bubble you need;
– something going up pretty fast
– something going up pretty fast for no sound reason
– something going up pretty fast because mister and mrs everybody is buying it
– something going up pretty fast because it is pushed by speculators
Then… is it possible to have a gold bubble? I am not the type of guy to scream from the rooftop that the end of the world is near. I am actually more the type of guy that wants to make money while people are running the other way. However, I think that we have several ingredients that were put together to make a great gold bubble soup. And I can smell it from my kitchen!
Just before the crash of 2008, we read study after study written by the most prolific economists and PhDs telling us how the price of oil would skyrocket due to its rarity. It was common to cross mister and mrs everybody telling you that they had bought an oil company shares or an oil related ETFs because the price of the barrel will soon hit $200…. 2 years later, I’m still waiting… and most of the “people” lost a huge load of money (because they probably sold when the barrel hit $35 back in December 2008)…
Why gold would be different?
This is the caveat with all bubbles; this time, it is different. Let me laugh and spill coffee on my laptop for a moment… okay, I’m done. Really? Gold is different? Can someone tell me ‘cause I don’t get it ;-).
If you want to read more about gold, Intelligent Speculator has a very interesting 2 parts series on the price of gold:
What is your take? Gold to go up or burst the bubble?
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