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Thread: [Video] Marc Faber: Gold And Silver Won't Collapse... Unless...

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    Default [Video] Marc Faber: Gold And Silver Won't Collapse... Unless...

    Marc Faber: Gold And Silver Won't Collapse... Unless...
    CNBC | January 30, 2013


    http://youtu.be/pajNmWmOOiI



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    Like Marc says they can't collapse unless there's a huge deflationary collapse OR a bubble bursts, but we know gold isn't in a bubble yet.

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    How do you know it isn't in a bubble? Tripling in price over just about three years (2008- 2011 went from about $600 to around $1900) cannot be sustained (It seems it has peaked and is now slowly winding back down).

    http://www.kitco.com/charts/livegold.html

    Sharp gains in a short period of time are often indicators of a bubble- especially when the price run- up is significantly faster than rises in other prices.

    http://www.investopedia.com/terms/s/...tivebubble.asp
    Definition of 'Speculative Bubble'

    A spike in asset values within a particular industry, commodity, or asset class. A speculative bubble is usually caused by exaggerated expectations of future growth, price appreciation, or other events that could cause an increase in asset values. This drives trading volumes higher, and as more investors rally around the heightened expectation, buyers outnumber sellers, pushing prices beyond what an objective analysis of intrinsic value would suggest.


    Read more: http://www.investopedia.com/terms/s/...#ixzz2JfxNEQPg
    Last edited by Zippyjuan; 02-01-2013 at 01:05 PM.
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    Quote Originally Posted by Zippyjuan View Post
    How do you know it isn't in a bubble?
    How do you know it is?

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    Quote Originally Posted by Confederate View Post
    How do you know it is?
    See additions I made to my post.
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    Compare the gold chart to housing prices during their bubble:
    http://en.wikipedia.org/wiki/File:Me...10_Monthly.png
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    The housing prices was due to a credit bubble, gold prices are tied to the floating fiat value of the FRN. Has gold production expanded where its supply is greater than demand? Maybe the paper has but with the other countries wanting their reserves back it does not seem to be the case. Turn the gold chart upside down and it looks like the Dollar index chart here.

    http://www.barchart.com/chart.php?sy...&txtDate=#jump
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    The gains in the price of gold outpaced both the rise in prices of other goods and commodities as well as the decline in the value of the dollar. Very indicative of bubble activity. But it won't necessarily pop as dramatically as the housing bubble did. The last gold bubble (which peaked in 1980) took 20 years to wind down. The current peak has been $1900. It is down about 15% from that.
    Last edited by Zippyjuan; 02-01-2013 at 03:29 PM.
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    Quote Originally Posted by Zippyjuan View Post
    The gains in the price of gold outpaced both the rise in prices of other goods and commodities as well as the decline in the value of the dollar. Very indicative of bubble activity. But it won't necessarily pop as dramatically as the housing bubble did. The last gold bubble (which peaked in 1980) took 20 years to wind down.
    I am not sure of this, but I think the invention of Mortgage Backed Securities played a huge role in the run up in home prices since it essentially supplied unlimited money to that sector. Gold also started shooting up with the formation of funds/stocks/ETF's that allowed the average person to invest in it and not have to buy physical - also directing large sums into it. Read an article on that sometime back.

    I will bet that it will either go up or down in the coming months...

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    I will bet that it will either go up or down in the coming months...
    Probably right there.
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    Quote Originally Posted by Zippyjuan View Post
    How do you know it isn't in a bubble? Tripling in price over just about three years (2008- 2011 went from about $600 to around $1900) cannot be sustained (It seems it has peaked and is now slowly winding back down).

    http://www.kitco.com/charts/livegold.html

    Sharp gains in a short period of time are often indicators of a bubble- especially when the price run- up is significantly faster than rises in other prices.

    http://www.investopedia.com/terms/s/...tivebubble.asp
    Okay, I'm just going to ask a simple question. Can you show me a historical example of a bubble where its price plateaud just 10-20% below its peak for one and a half year after reaching that ultimate peak?

    I have searched but i have not found. Look at Apple, within months its down 35%. Microsoft, nasdaq, gold and silver in the 80's. All crashed way further than gold has done now within the year of reaching its peak.
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    Quote Originally Posted by fatjohn View Post
    Okay, I'm just going to ask a simple question. Can you show me a historical example of a bubble where its price plateaud just 10-20% below its peak for one and a half year after reaching that ultimate peak?

    I have searched but i have not found. Look at Apple, within months its down 35%. Microsoft, nasdaq, gold and silver in the 80's. All crashed way further than gold has done now within the year of reaching its peak.
    Yeah, Zippyjuan's eternal attempt of playing contrarian leaves him to be senseless sometimes. Bubbles burst and decline rapidly due to leveraged speculative buyers becoming sellers. Gold liquidating 15% over the course of almost 2 years isn't a bubble popping. Checkout the Dow's decline in 2008/09. Japan in 1989. NASDAQ in 2000.

    Zippy, pull up a chart of the Dollar. Let me know what you find.

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    Interest rates going up will have a dramatic effect on metals...people will want the interest instead of the store of current wealth.

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    Quote Originally Posted by awake View Post
    Interest rates going up will have a dramatic effect on metals...people will want the interest instead of the store of current wealth.
    Only if real interest rates increase faster than inflation and reflect rational (market) time preferences. If inflation is 10% and interest rates are 10%, people will look elsewhere instead of at debt markets, which are already in bubblemania. How did this bond bubble begin? 30 years ago with 20% nominal interest rates. We're years from a Paul Volker ever coming about, and if rates did move even modestly to 5 or 6%, the U.S. government would be in crisis territory. Debt service would consume most of the budget, and banks would be collapsing as their capitalization rates would plummet.

    If Treasuries are tanking, what interest bearing securities would people be lured into? Corporations issuing 10% or 15% annual coupon payments? No company (or I should say, very few) would be going into the market to borrow money at those rates. Imagine how terrible of an environment it would be if we fast forward to that? If many corporations aren't borrowing today at record low rates and instead are holding onto hoards of cash, why would a lightbulb go off for them to borrow when rates are 5-10 times higher than they are today?

    Warren Buffett became as rich as he is with about a 21% compound annual return. So, if a company would be looking at a cost of capital of 15 or 20%, they'd need to invest in a Warren Buffett project in order for the investment to make sense. How many projects of those are there? That could be one of the reasons why cash on balance sheets are at levels they are at today. If an average joe borrowing at 12% on his credit card is a stupid idea, it would be difficult for a corporation to justify it as well--especially given the lack of opportunities that would be present in such an environment where the US government is either defaulting, restructuring, or resorting to more inflation.

    As much as the government does need to go through that phase of deleveraging, it would have a dramatic impact on the economy. With how much the US government is involved in our lives today--even a simple drawdown of its current levels to a 2006-level-of-government would tank the markets--because government has grown exponentially. As a result, many corporations are dependent upon government funding or relationships in some form or fashion. If interest rates were 10%, I'm not so sure people would be jumping out of gold and into debt again--especially given how we're at the end of a massive debt supercycle that's been around for decades. No one will want government bonds at 10% because at that point, the US Government will have no way of paying those rates. Greece's 2 year was yielding 800% at one point in 2011, but that didn't draw people to the market.

    At some point, gold will be at bubble stages. At some point, other investments will be far more attractive. But that some point is some time off, given what's in front of us: a massively leveraged US government, consumer, and banking system.
    Last edited by marketsnowball; 02-02-2013 at 07:49 PM.






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