Robert Lenzner: Gold Hasn't Reached "Ultimate Bubble" Stage Yet

George Soros' phrase "ultimate bubble" has two meanings; those who were familiar with his writings saw it as a signal that he was getting into gold (which he did.) So far, gold hasn't shown much bubble action: the bull spurts don't make for much of a parabolic rise, and they're followed by pullbacks/corrections and consolidation periods. If there's any bubble-like action in the commodities markets, it would be in foodstuffs and cotton - and copper.

Wise students of the gold market held back in the face of a strengthening dollar. Rule No. 1 about gold is that it moves in the opposite direction of the dollar 70% of the time. So, when the dollar rallies, gold will ease- and when the dollar is being pounded down– gold skyrockets. Thems the dynamics, according to Prof. Frank Holmes, CEO of US Global Resources, a luster after the precious metal.

Other commodities, more required for putting food on the table. heating homes and building infrastructure have been the hot markets to play these past 4 months. Copper, which is in short supply is up over 20% and sugar, rice and other agricultural have been acting as if a bubble might be forming. Let’s hope not....

The ULTIMATE GOLD BUBBLE will occur when and if confidence in the dollar plummets due to an inability of dealing with the nation’s debt load or there is a sudden horrific spike in inflation, ie oil prices double to $200 a barrel– or some insane terrorist act frightens the holders of paper money into hoarding gold.

A more reasonable ultimate bubble would be the decision to create a new global currency, which would have a serious weighting in gold. Think gold as a monetary reserve. It’s happening but gradually, not as a sudden panic.

I think Lenzner is right about gold not going crazy unless there's a serious outbreak of inflation in the U.S. The Asian markets are increasingly important, but the more developed economies are the ones with the deficit and debt bulges. Also, there's lots of North American people who are aware of gold, thanks to increasing visibility in the mainstream business media, but many of them have not bit yet because inflation doesn't seem like that great a worry - yet.

Gold's still in the pre-bubble stage. Although great gains have been made in exploration stocks, we have yet to hear about whizbangs who've turned $10,000 into $1 million by flipping those stocks. Once those stories make the rounds and travel around the block, the soil will have been fertilized for a greed-induced self-feeding bubble.

But not until a jump in inflation puts the kibosh on the still widely believed "U.S. as Japan" mantra. There are still lots of people who believe that the new normal entails not only subpar growth but also mild deflation. The deflationist meme is still strong. Gold won't be ready for a big blow-off run until the deflationists fold their hands or fade away. The bulk of recent gold buying of gold has been for portfolio insurance purposes, not inflation anticipation. Inflation taking off would mean the inflation trade taking off. That hasn't happened yet.