Tuesday, August 23, 2011

Time to abandon the gold ship.

Compare a typical bubble chart (the one below shows the 2007-2008 oil bubble) with that of the today's gold prices.


Classic bubble chart - many financial bubbles show the pattern of this oil price chart. From 2000 to 2007, oil prices gradually increased, then the speculators took over and prices increased at an accelerated pace. Followed by the crash in 2007-2008 and prices fell excessively below the long term equilibrium price. Upon a vigorous short recovery until mid 2008, oil reached their 'equilibrium price' and increased thereafter at the same pace as before the peak.

Now compare this to the five year price chart of gold today. Looks familiar? Yep, the rate of gold price increase has accellerated dramatically and it is building a speculative peak. I sold most of my Gold ETFs at $1100 (a bit early). Now again today, I sold all my gold coins bought way back in the early 1990s for under $300 each.

There is no way to predict when this bubble will burst; but burst it will! The price is likely to fall back to  $1400 or when there is a real panic, even lower. So everyday you wait, the risk of a crash increases. Should you buy gold today?  Well, I think my answer is obvious. But more aggressive investors may still buy in the hope of relatively small profits - looks to me like a game of musical chairs! Who will be holding the bag?

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