Friday , 22 September 2017


Gold is Not in a Bubble – Here's Why

So says Eric Parnell  in edited excerpts from his original article* as posted on www.SeekingAlpha.com.

Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.

Parnell goes on to say, in part:

 Gold is not in a bubble. This is true for several reasons.

1. As the dollar has fallen over the last decade, gold has risen and, given the fact that global central banks including the U.S. Federal Reserve remain engaged in competitive currency devaluations in an environment where markets remain on the brink of crisis, little reasons exists to suspect that this trend is going to stop any time soon.

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(click to enlarge)

2. The price of Gold has responded repeatedly to its 150-day and 200-day moving averages and it has rarely deviated from these long-term trend lines [as seen in the chart below]. Gold’s price movement over time also lacks any of the parabolic short-term price escalation that is characteristic of a bubble. To the contrary, it’s price movement has been very predictable and rational all along the way.

(click to enlarge)

3. Gold is trading at a reasonable price ratio relative to the S&P 500 Index given the current market environment. Since 1971 when the Bretton Woods system was officially terminated and the gold price was free to fluctuate, we have experienced three market cycles:

  1. a secular bear market for stocks that ended in 1982,
  2. a secular bull market from 1982 to 2000, and
  3. the secular bear market that has existed since 2000 through today.

During the secular bull market:

  • the stocks-to-gold ratio steadily increased amid price stability and investor confidence about the stability of the global economy.

During the two secular bear market phases:

  • the stocks-to-gold ratio steadily declined due to inflationary/deflationary pressures and uncertainty surrounding the global economic instability and the viability of the fiat currency system.

At a current stocks-to-gold ratio of 0.85, we are still well above the lows of 0.22 reached at the bottom of the last secular bear market [as illustrated in the graph below].

(click to enlarge)

The above are just three of many reasons why Gold is not in a bubble.

Conclusion

Gold continues to represent an ideal portfolio allocation to protect against the threat of pricing instability and economic crisis across many regions around the world. This is particularly true with many global central banks still firmly engaged in increasingly easy monetary policy in an ongoing effort to restore growth and, as long as uncertainty reigns, Gold will continue to represent an attractive portfolio holding.

*http://seekingalpha.com/article/559261-why-gold-is-not-in-a-bubble?source=email_macro_view&ifp=0  (To access the articles please copy the URL and paste it into your browser.)

Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

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