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

[fatjohn]

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.

[Gaddafi Duck]

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.

[awake]

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

[marketsnowball]

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.