The words 'bubble' and 'gold' aren't exactly strangers. Since gold began its long march from lows of below $US300 in the early 2000s, a bubble has been called numerous times.
On each occasion those making the claim have seen prices rise ever higher. I remember reading about a gold bubble when the yellow metal hit $US600 an ounce, $US1000 an ounce and again at $US1500 an ounce.
Today, with gold nearing a staggering $US2000 an ounce, the bubble term is once again being
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Is it true this time? It's impossible to say.
If, however, one applies marginal cost rules to estimate the gold price, on this measure 'fair value' rests somewhere between about $US1200-$US1500.
This is circumstantial rather than hard evidence, as much a guesstimate as that of the wild-eyed
bug who proclaims money is dead and gold will reach $US5000 an ounce.
But there are a few qualitative measures that suggest gold has run a little too hard. The first appeared in this article. It recounted how a German company, already with operations in Europe and the United States, was bringing a ''gold-to-go'' self-service machine to shopping
centres, hotels and airports.
Everyday shoppers and travellers worried that modern economies were on the brink of collapse could readily assuage their fears as they head out for a juice and croissant.
Surely gold vending machines are a classic sign of a market top?
Secondly, miners are starting to announce bonanza profits. Newcrest Mining, Australia's largest gold miner, recently posted a record full-year profit, as did OZ Minerals. When oil hit its peak in 2008, energy firms announced similar sized results.
Thirdly, more money is now going into gold exploration than any other commodity. Combine points two and three and there is a high risk prices could fall, certainly higher than most imagine.
That doesn't mean the bull market is over. In the prior bull market, gold prices fell by 40 per cent and 50 per cent before ultimately reaching an peak and popping.
I have no doubt this run will end in a similarly spectacular pop. But who's to say whether gold at $US2000 an ounce is closer to the beginning or the end of the cycle?
There is no rational analysis to make either case, which means investors are acting more from instinct and emotion than anything else. And that rarely ends well.