Gold in a Bubble? Not Yet, Consultant Says

June 15, 2010 - According to Tuesday’s San Francisco Chronicle, despite the sharp rise in gold prices, analysts don’t think we’re in a gold bubble — yet. Although buyers continue to seek gold, just as many out there are selling the precious metal. Coins like the American Gold Eagle and the South African Krugerrand are selling at only a slight premium, and suburban families are holding “gold parties” to sell old and broken jewelry.

Nick Zaharias, a financial consultant, is quoted in the Chronicle as saying, “Bubbles never blow up without the American investor class being overexposed to the item that’s in the bubble.” Zaharias goes on to note that in a bubble, the only behavior is buying — selling parties are not indicative of bubbles. Zaharias advises hedge funds, and he has put 30 percent of his family’s money in gold.

Other analysts are not so sure. In a blog called “The Gold Bubble,” blogger/analyst Daniel Ryan feels that the very hype around gold — celebrity endorsement, over-confident bulls — indicates a bubble. As Ryan puts it, “I don’t know whether gold is a bubble. I just know that it’s giving off the aroma of something that smells like one.”

Perhaps the most telling clue about the question of a gold bubble is the fact that virtually no one is recommending short selling gold. Short selling is based on a bet that the asset’s value will decline, and even those analysts who are not bullish on gold are not recommending shorting the commodity. Perhaps investors should hang on to their Gold Eagles a little longer — at least as long as the gold mavens in the suburbs continue to party on. When they start hoarding, it may be time to sell.

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Joshua Harris

Senior Staff Writer - Gold-Eagle.org