Bubblemania: Part IV, The Mythical "Gold Bubble"

In Parts I, II, and III; I discussed the “epidemic of bubble-blindness” among American business writers and “analysts”. This is a very peculiar condition in that not only are all U.S. asset-bubbles completely “invisible” to those afflicted (approximately 95% of all U.S. writers), but those suffering from this condition are prone to seeing non-U.S. asset “bubbles” virtually everywhere.

The ultimate example of this phenomenon is the endless multitude of U.S. articles “warning” investors that there is a “gold bubble” which is about to burst. These bubble-blind boobs were totally unable to “see” the U.S. “dot.com bubble”, the first and second U.S. housing bubbles, and the especially outrageous U.S. Treasuries bubble – despite the overwhelming evidence of absurdly excessive prices, and enormous amounts of leveraged-debt (the two components necessary for any bubble).

Conversely, these pseudo-journalists regularly proclaim they can “see a gold bubble”, despite there being absolutely zero evidence of such. To begin any analysis of asset-prices, the first step of such analysis is to strip-out inflation from the price of the asset in question. This is an obvious necessity, as if this is not done, then it is absolutely impossible to state how much of a “price rise” is an actual (absolute) gain in price, and how much of this “price rise” is merely tracking inflation.

Virtually none of the American writers who “see” this supposed “gold bubble” ever even conduct this preliminary (and elementary) step in their analysis. Lest you think that I am “cherry-picking” among these dolts for the especially-clueless among the “gold bubble-spotters” (who failed to adjust the price of gold for inflation before concluding that there is a “gold bubble”), this list of incompetent analysts includes Nobel Prize winner (for economics), Nouriel Roubini (among many others).

There is an obvious reason for the gold-bubble zealots to refuse to factor-in inflation in their facile attempts at “analysis”: any attempt to strip-out inflation from the price of gold shows that rather being in a “bubble” that gold is one of the most under-priced assets on the planet.

If we use the “official” inflation numbers of the U.S. government (i.e. ridiculously fraudulent numbers for inflation), even that partial-analysis shows that the price of gold would have to more-than-double (to nearly $2500/oz) from its current price just to equal its (“real dollar”) all-time high from 1980. If we scan the world of commodities to look for any other major commodity which is currently priced at less-than-half its (“real dollar”) price of 30 years ago, we find only one other commodity: silver.

In fact, it is this remarkable “coincidence” that both of the most grossly-undervalued commodities on the planet are “precious metals” which is one of the myriad reasons why “gold bugs” are convinced of rampant manipulation in the gold market (with the confessions of many prominent officials being another reason).

However, we can’t truly understand the degree of U.S. gold-bubble idiocy until we use legitimate numbers for inflation (i.e. those from John Williams of Shadowstats.com). In other words, we need to look at the real, “real dollar price” of gold. As subscribers to Mr. Williams site already know (along with my own, regular readers), if we use actual numbers for inflation over the last 30 years, then the price of gold would have to rise to approximately $7,500/oz to equal the 1980-high (a more than six-fold increase from today’s price).