Is This The Beginning of a Beautiful Gold Price Bubble?
How high can gold price go?–are many investors asking in the last weeks as the upward trend is more and more clear. Is it possible that we are only at the beginning of the formation of a gold price bubble?
Gold futures price rose above the key psychological level of 1,800 USD in the last days, reaching a new 9-year high at $1,829.8. Gold futures’ all-time high in 2011 was by $1,920.70. But gold is on new historical highs in most other currencies (CAD, AUD, JPY, CHF, etc.). (Silver is nearing the 52-weeks high by $20.0.) See the charts below and at the end:
The reasons are clear, there is a lot of uncertainty in the economy. The second wave of Covid-19 is affecting a lot of countries already. Analysts are groping in the dark about the length and depth of the crisis. Central banks are pouring unprecedented amounts of money into the market. Although inflation is low now, government bond yields are even lower. Real interest rates are negative almost everywhere.
The jump in the number of U.S. coronavirus-infections causes fresh lockdowns and slows down the economic recovery. Also, a weaker dollar supports gold and other commodities.
How High Will Gold Price Go, Then?
A positive, self-reinforcing spiral may have begun. The higher the price of gold goes, the more optimistic analysts and investors we see. And more and more people are buying gold, both small and large investors. As fresh central bank money is pouring into economies, in recent years gurus often talked about “all-asset bubbles” already. Perhaps this will only reach the precious metals in the next months?
But over the years, I’ve also observed that asset prices rarely reach analysts ’target prices (unless there’s a general bull market). It makes sense because if everyone thinks gold is worth three thousand dollars, no one will want to give that much for it. Investors want to buy cheaper, at least 15-20 percent lower so they can sell it at a good profit when it becomes 3,000. Except for a few very long-term-minded investors, but these are rare these days. For many, a few months are already a long period in speculation.
Another old observation is that in an upward trend, analysts predict mostly ten to twenty percent more than the current price. Perhaps because this method is most likely to approximate the future price. Going against the trend is very dangerous and often fails. Many try to find at least the correct direction of the prices.
Was gold a good investment in the past, or not? Don’t forget to read: DIY Fake News Generator –Was Gold a Better Investment, or Stocks?