Cover of MoneyWeek magazine issue no 463

Bargain hunting

27 November 2009 / Issue 463

Cut your costs with ETFs...

PLUS:

  • Why gold could go to $6,000
  • Profit from China's growing thirst for milk
  • The bestsellers that sparked a vicious family feud

Excerpt

The gold bubble is yet to come

Is there a bubble in the gold market? Must be, says one reader. Just turn on the TV during the day and you’ll see hours and hours of ads from agencies offering to buy gold from you – pop it in an envelope, send it off, and next thing you know you’ll get back an envelope full of cash.

But this mild level of public interest is not evidence of a bubble, not least because it invites people to sell, not buy, gold. It’s more a sign of a growing awareness of gold, which adds weight to the idea, suggested this week by Société Générale’s Dylan Grice, that we’re in the boom stage of a possible Kindleberger cycle for gold.

We’ve written on this many times before – the cycle comes in five stages.

• First the ‘displacement’ – a big change of some sort.

• Second the ‘boom’ – when a convincing story about the asset in question begins to gain traction.

• Then comes ‘euphoria’ – where greed takes over and everyone piles in.

• Next comes ‘crisis’ – insiders sell, prices fall, a rush to the exit kicks off and the real misery starts.

• Finally we have ‘revulsion’ – when no one will touch said asset class with a barge pole.

Gold has had its displacement (a financial crisis followed by an epidemic of money-printing), and it now seems that a nice story explaining why it should keep rising in price is gaining hold (see nearly every issue of MoneyWeek over the past five years for details on this).

• Read the full editor’s letter here: The gold bubble is yet to come