Gold's bull run isn't over yet

Call it a bubble, a bandwagon, a bull market, or whatever you will. One thing's for sure, when the price of something's going up, there's nothing quite as exhilarating as being in on the ride.

And there's one bubble that's really getting going just now. But before we get into that, let's just take a closer look at bubbles.

There's always a good reason for a bubble, something that stokes the public's imagination. I call it 'the story'.

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For example with the dotcom bubble, the story was about websites that could generate millions of users at practically no cost. Companies that were going to steal market share from the 'old-economy' with impunity, and make loads of money.

Every bubble has to have a plausible story, and there has to be some truth behind it too. Companies like Google and Amazon really did live up to the dotcom promise. But for the majority, it just wasn't possible to deliver on the promises that drove investors wild during the boom.

Bubbles never deliver, there are always flaws to the story. But if your interest is making money, then this doesn't matter. In markets, it's timing that matters. Find the story before everyone else is hot on it, ride the bubble up and then get out before the flaw is revealed.

This story is getting closer to its climax

Right now there's a great story developing. This story's been building for a few years and it looks like it's getting closer to its climax. That's the point when the public 'get it'. And once they 'get it', they'll beg, borrow and steal to 'get in on it'.

So what's the story? As if you didn't know. the banks made a pigs ear of complex debt instruments. Governments made a pigs ear of public sector finances. And the public's made a pigs ear of their own finances.

The next we know, all hell breaks loose, first in one country and then others, as the dominoes fall.

We've seen riots in Athenian streets, banks burned, people killed. The financial system is under pressure again and politicians and bankers are in daily meetings to avert crisis. The markets don't know which way to turn.

All of these things are classic events that get behind a story. And this is the story behind gold. Before you say it I know that gold is trading at its all time high. But remember, a bubble quickly establishes new highs. It won't stop until it's sucked in a good proportion of the public. Here's why.

Financial crises just don't happen anymore

In the Western democracies, post-war generations have little understanding of proper financial crises. We've just got no experience.

We've got a steep learning curve to climb. I mean, how many dinner party conversations have you had about safeguarding wealth in a serious financial crisis? Not many, right? This means gold has a lot further to run as people learn what it's all about.

Please don't get me wrong. I'm not saying that the financial system is about to implode. I'm just saying that this is the story and it's gathering pace on a daily basis. This story isn't going away any time soon. That means there's more mileage in gold, in fact the best may yet be ahead of us.

Gold is still heading up

I've been buying physical gold (as opposed to paper gold traded on the stock market) on a monthly basis. This takes me to The Savoy Court on The Strand to a bullion dealer that sells gold and silver coins, as well as bullion bars.

The last couple of times I've been there, I've had to wait to see a dealer (maybe this is saying something in itself). Last time, I asked the guy in front of me what brought him there.

Well, he told me, "My IFA advised me to buy some physical gold."

Now that got me thinking. Why on earth was an IFA advising his client to buy physical gold? There's certainly no commission in it for him! I have to confess, it's got me baffled.

But more importantly, is the public starting to get in on the story? After all, gold is normally only for cranks yet an IFA is advising his clients to pick some up. And it's not even a gold ETF he's advising it's physical gold!

I read that rich Greeks are buying houses in London, and I suspect they're picking up gold too, dumping Greek euros before exchange controls kick in. How long before the Portuguese, Irish, Italians and even Brits join them?

The gold chart is looking good and the story is picking up pace.

I'm keeping up my monthly visits to The Strand.

This article was written by Bengt Saelensminde and was first published in the free daily investment email The Right Side on 7 May 2010.

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