No Gold Bubble In Sight, Yet

That's the message of a piece written by Andrew Mickey, who lists nine reasons why gold is not in a bubble as yet. Those reasons are:

1. No blow-off top in progress.
2. Gold is still an alternative investment, which hasn't broken through to the mainstream.
3. The companies that flooded late-night TV with gold ads are looking for gold sellers, not buyers. (Ads from gold sellers looking for buyers have been few and far between.)
4. Real rates are still negative, making gold's lack of a payout no real deterrent to holding it.
5. Interest-rate increases that are driven by higher inflation - i.e., nominal but not real rate increases - are not going to harm gold all that much. The only rate increases to fear are proactive ones by central banks looking to stomp out inflation.
6. The much-noticed gold vending machines are merely a convenience, not a sign of gold mania. Innovations in customer service do not a mania make.
7. Closed-end gold funds are not selling at historically large premiums.
8. Gold stocks aren't shooting up, as they would in a mania.
9. The best-seller lists of business books show nothing gold-related.

For me, the ninth one was the real clincher - no wonder why it was put at the end. Manias create demand for books on how to get in on them. So far, although the number of titles has expanded, there hasn't been that kind of reader demand. Admittedly, there is a "Gold for Dummies" title - but it hasn't achieved best-seller status.


While we're on the subject, Dominic Frisby points to the continual wall of worry as a sign that gold is in the second stage of its bull market.

It is said that a major bull market has three phases. The first phase is the stealth phase, where only the 'smart money' gets onboard. This is followed by a correction. The second phase, typically the longest, is known as the 'wall of worry' phase. This is when more and more institutions start to come onboard, the sector receives more and more media coverage, but there is still a great deal of incredulity and denial. People think they are too late to invest.

Finally, we have the euphoria – the mania phase – where the proverbial shoe shine boy starts giving you advice....

This is a fairly arbitrary cycle of course. But I would argue that we are somewhere in phase two in this gold bull market. I am still amazed at how few people actually own gold. Phase one, the stealth phase, was between 2001 and 2008 and ended with that bone-shaking meltdown....

Given that the wall of worry still exists, Frisby points to gold's 144-day moving average as giving a good guide to when pullbacks end. Using current numbers, that indicators suggests the metal will go to $1,300 before pulling back up again.