Is Gold in a Bubble? By David Chapman,Technical Strategist & Director

Gold | admin | September 17, 2011 at 6:56 pm

It seems that every time gold makes an important high followed by a sudden collapse the comments that the gold bubble has burst dominates the commentaries. The problem with making that comment is that every time following what may be a sharp correction gold has moved on to new highs. Over the past decade no previous year's low has been broken by any correction, usually a good sign that the market remains in a bull market. And until that occurs, while the bubble people may ultimately be right, gold can go a lot higher before the final peak is seen.
A bubble normally occurs when prices are driven well above their value in relation to some method of valuation. Unlike a stock, however, gold is difficult to value. The current shift to gold is being largely driven by a collapse in confidence of fiat currencies all around the world.
Fiat currencies have no barrier to supply as governments around the world can effectively print money to whatever amount is required.
Gold on the other hand takes years to go from the first drill in the ground to an actual producing mine.A majority of exploration projects are never realized as producing mines.
There is very little to support the thesis that "gold is in a bubble" about to be burst. It is under owned as an asset class and the flows into precious metals and financing's do not support the premise that gold is in a bubble