Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold, Silver & HUI Stocks Big Pictures - 28th Sep 20
It’s Time to Dump Argentina’s Peso - 28th Sep 20
Gold Stocks Seasonal Plunge - 28th Sep 20
Why Did Precious Metals Get Clobbered Last Week? - 28th Sep 20
Is The Stock Market Dow Transportation Index Setting up a Topping Pattern? - 28th Sep 20
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Investor Sentiment Surprise, Are We In a Bubble?

Commodities / Gold and Silver 2010 Apr 26, 2010 - 04:27 AM GMT

By: Q1_Publishing

Commodities Best Financial Markets Analysis ArticleIs gold already in a bubble?

News for gold bulls just keeps getting better and better. A few weeks ago the World Gold Council announced it expects China gold-buying to double over the next 10 years.


Gold has been on a solid run over the past few months. Other than a sharp correction when the SEC announced it had filed charges against Goldman Sachs (NYSE:GS) a week ago, gold has been on a remarkable run. It was up 16 out of the past 20 days.

The run-up from the February correction put the price of the yellow metal less than 10% from its recently set all-time high.

Also, gold stocks are really starting to do really well. Although gold stocks still remain severely undervalued relative to gold due to a Fortune-Making Anomaly in Gold Stocks, the gap is starting to close.

But many investors still worry gold is still in a bubble. A quick look at these three gold sentiment indicators reveals we’re nowhere near the top of the emerging gold bubble.

Gold Prices “Too High” To be in a Bubble

A few weeks ago the St. Petersburg Times looked into whether gold had reached bubble highs.

In Financial Advisors Warn Gold May be at Bubble Level the paper reported:

At least one-third of Kimberly Sterling's clients have sought her advice in the past year about investing in gold. The Orlando financial planner has successfully discouraged all but one of them from doing so.

That one investor insisted on having some gold in his portfolio, she said, despite her warnings. Eventually, she referred him to a gold commodities exchange-traded fund that has done well during the metal's decade long run-up in price. But her firm, Resource Consulting Group, still wouldn't buy in; it would only make the referral.

"Our bottom line is this: Gold is a bubble now, and it is too late to get in," she said. "It is like someone who bought real estate in 2006, at the height of that bubble. You could get hurt really badly."

"There are obviously some periods where you could have made a killing (in gold) if you timed it just right at the beginning of the bubble and got out at the top," she said.

Although a few financial planners’ opinions aren’t necessarily representative of the entire market, this attitude does show that gold is not in a bubble right now.

The funny thing about bubbles is that when you’re in a true bubble price is not an issue.

Think about the last two bubbles: housing and tech stocks.The prices were high. Everyone knew they were high. But it didn’t matter to most folks because “prices were going higher.”

With gold comfortably above $1,100 an ounce and many investors still actually concerned it’s too high, shows we’re not in a bubble.

Remember, bullion dealers sell a lot more gold at $1,000 an ounce than they did at $400. Just imagine how much they’ll sell at $2,000 an ounce when, although the price is twice as high. Buyers won’t care about the price because they “know” it’s going much higher.

That’s not the only indicator gold hasn’t reached bubble-stage yet, there’s also the fact the world’s worst investors haven’t bought big into gold yet.

The Worst Investors Have Not Bought Yet


It’s no secret that mutual fund investors are the embodiment of “the herd.” As a group, they are the worst investors. They sell out at market bottoms and buy big at market tops.

For example, back in 2009 when the current rally was in its early stages, we noted how mutual investors were “done” with the markets.

As the chart below shows, they were had been pulling out money faster than they have in over a decade:

As you can see, mutual fund investors were selling out in 2002 and 2003 as the markets were bottoming out. Then in 2008 and early 2009, they really ran for the hills.

Right now, we haven’t seen the mutual fund investor crowd jump on the gold bull. Just take a look at what has happened at mutual fund investment management company U.S. Global Investors (NASDAQ:GROW) to see why.

Headed by the indefatigable gold bull Frank Holmes, U.S. Global is positioned as one of the leading gold fund managers in the world. It’s two precious metals funds have been doing very well. The Gold and Precious Metals Fund (USERX) which has returned 22.77% annualized over the last five years. And the World Precious Minerals Fund (UNWPX) annualized 19.88% annualized over the last five years.

But that performance hasn’t attracted the hot fund-chasing herd. U.S. Global’s assets under management (AUM) show why.

In 2006 when gold, precious metals, and global investments were thought to be unbeatable, U.S. Global reported more than $5 billion AUM.

Since then, a lot has changed. The credit crunch sent the herd running away. At the end of 2008, U.S. Global had a mere $1.98 billion AUM – a 60% decline from its peak.

Jump ahead a year and U.S. Global’s AUM has climbed to $2.7 billion at last report.

They are recovering, but when the gold bubble really does come, we expect U.S. Global to have around $10 billion to $20 billion AUM.

The final sentiment indicator shows gold isn’t a bubble yet because investors are too prepared for a downturn in the price of gold.

“Insurance” Against Gold Collapse Still High

Most institutional managers buy “insurance” against market downturns. When they manage broad portfolios, they'll buy put options (the right to sell a security at a predetermined price) against a major index like the S&P 500. The cost of this insurance is tracked by the Volatility Index (a.k.a. the VIX) which tracks the implied volatility on an option contract.

They also can and do buy put options and for individual positions. In the case of gold all we have to do is look at the SPD Gold Trust (NYSE:GLD) to see the cost of insurance against a downturn in gold prices.

It turns out the March 2011 put options have an implied volatility of 22. This level is still relatively high.

When gold is in a bubble and there is no need for downside protection because it can “only go up,” you’ll see the implied volatility on the options fall down into the low teens.

This IS a Bull Market in Gold

Right now there are almost no signs a bubble has formed in gold.

There’s no overwhelmingly bullish consensus that would signal a true bubble has formed in gold. And there is still a big opportunity in gold stocks.

We continue to believe the gold bubble is coming for a number of reasons and recommend gold stocks where the rewards far outweigh the risks. For example the five gold stocks detailed in them climbed 1646% while the price of gold climbed 13% over six months period last year (follow this link to get your own copy of the report – 100% Free).

Bubbles create the greatest opportunities to make fortunes in a relatively short period of time. Don’t let this one pass you by because “it’s too late to get in.”

Good investing,

Andrew Mickey

Chief Investment Strategist, Q1 Publishing

Disclosure: Author currently holds a long position in Silvercorp Metals (SVM), physical silver, and no position in any of the other companies mentioned.

Q1 Publishing is committed to providing investors with well-researched, level-headed, no-nonsense, analysis and investment advice that will allow you to secure enduring wealth and independence.

© 2010 Copyright Q1 Publishing - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules