Seeking Alfa:

Is gold in a bubble?

One of my colleagues has repeatedly asked me this question. I am quite clear on the answer: “NO”.

How many people do you know who actually hold GLD? How many people do you know who are actually buying gold? How many people do you know actually buy mining shares? The answer all too often is close to zero.

A bubble is ALWAYS easily recognizable (unlike the shameful Greenspan who claims that it can only be seen hindsight). The participation rate will be quite high, so that you are bound to hear about it in news REPEATEDLY, and enough that it will be always the “topic of the party”. A bubble is a collective ignorance or rather frenzy, and there is always a disconnect to reality.

In fact, gold is looking extremely good technically, forming the bottom of the cup in a cup and handle chart. The next rising up is usually pretty substantial.

At $1000 just a month ago, the gold bull is faithfully shaking off the Indian and Arabic participants. However, the Asians will be piling in due to competitive devaluations of their own currency. Asians have always recognized both gold and silver as the money. They will never hesitate to protect their own wealth in the real money.

So are you onboard?

Unfortunately, for the smaller investors, physical gold is pretty much out of reach. With a minimum order of 20 ounces, that is about $20,000. The only current buyers are from institutions and people who have money to put away. These are smart investors buying in, while the middle class is selling out their last portion of gold jewelry for cash. Who will be right?