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When and How Gold Will Begin its Bubble

February 1, 2011 Comments off

The bull market in Gold is in its 12th year (globally it began in 1999) but has yet to exhibit any “bubble-like” conditions. In fact, we still see many people referring to this bull market as “the Gold trade,” as if its an aberration that needs to be reversed or corrected. That aside, we know that Gold is under-owned as an asset class. The very well respected BCA Research estimates that globally only 1% is allocated to Gold and that fits with some of the charts that I’ve shown in the past.

Institutional accumulation began in 2009 (e.g. Paulson, Einhorn) and we know that phase lasts at least a few years before a bull market gives birth to a bubble.

Part of the problem for Gold has been the solid performance of other asset classes through most of the Gold bull market. Stocks performed very well from 2003 to 2007 and from 2009-2010. Commodities performed well from 2001-2002 and in the first half of 2008. If stocks are doing well or if commodities such as oil and agriculture are performing well, it detracts from Gold. Gold performs its absolute best when the other asset classes underperform or don’t perform too well.

Let me explain the conditions and setup that will facilitate the birth of a bubble and Gold going mainstream. Read more…