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Markets in everything, further evidence that gold is a bubble edition
Wear a Historical Gold Price Chart as Jewelry.
For the pointer I thank Anna Powell-Smith.
Posted by Tyler Cowen on November 13, 2009 at 07:35 AM in Economics | Permalink
Comments
Why is it that many academics have a thinly veiled contempt for the yellow metal despite its outstanding decade versus-everything-else?
Academics with a broad understanding of the Austrian persuasion have the least excuse.
Posted by: Jonathan at Nov 13, 2009 8:57:26 AM
Gold isn't a bubble...yet
Since most asset prices bottomed in March, the dollar has declined significantly... dollar-priced assets should be priced about 20% higher based on today's exchange-rates, all else equal
Since then, the gold price is up...20%
The S&P 500 on the other hand, is up 60% - that seems a more likely candidate for the "bubble" label
Posted by: Master of None at Nov 13, 2009 9:19:01 AM
By the way, Jonathan, I recall Tyler including a 15% allocation for gold in his "recommended" portfolio (with the other 85% being diversified government debt).
Not exactly "contempt", although I can't find the link to that post...
Posted by: Master of None at Nov 13, 2009 10:04:01 AM
The US has effectively defaulted on its obligations twice in history. The first time gold rose 67% but was capped from any further increase. The second time it rose from $35 to $800 in less than a decade. If you think the US is on track to again effectively default, gold is hardly in a bubble. Take the low of ~ $250 in 1999 and scale that up 20x like our last default and you get to something in the $5000 range.
Posted by: joe at Nov 13, 2009 10:07:27 AM
Jonathan wrote: "Why is it that many academics have a thinly veiled contempt for the yellow metal despite its outstanding decade versus-everything-else?"
The other decades, I suspect.
Posted by: Ken at Nov 13, 2009 12:08:00 PM
Mr. Cowen, are you trying to imply gold is a bauble?
Posted by: Ryan Vann at Nov 13, 2009 3:07:37 PM
I think the titled meant to read "...that gold is a bauble."
Posted by: Ryan Vann at Nov 13, 2009 3:12:52 PM
Found the link:
http://www.marginalrevolution.com/marginalrevolution/2009/10/noah-stoffman-asks-me-two-questions.html
Posted by: Master of None at Nov 13, 2009 3:50:56 PM
Pfft, gold is a currency. Its is used a currency and priced as a currency. Gold rising in your currency means that your currency is either increasing in supply faster than gold, or that demand for your currency is down wrt gold, usually because of fears of monetary expansion.
Posted by: Doc Merlin at Nov 13, 2009 3:59:02 PM
@Doc Merlin: "Its is used a currency and priced as a currency."
Look at a gold chart for, say, 1979-1982. Now, was the US$ money supply really growing that rapidly for one year, and shrinking that rapidly for the next two?
http://www.sharelynx.com/chartsfixed/GC1970.gif
Your second reason, "demand for your currency is down wrt gold", is much truer, but so vague and general that it would apply to pretty much any trade good. This becomes clear if you were to say, for example, "demand for your currency varied with respect to Beanie Babies" to explain the infamous rise and fall of prices for that infamous investment.
Posted by: enoriverbend at Nov 13, 2009 4:41:09 PM
I have known Tyler for over 25 years, and want to say that his advice to me on my personal investments has been astoundingly consistent, and a huge help to me in determining what to do with my money.
Posted by: Chris Weber at Nov 16, 2009 10:41:54 AM
"Look at a gold chart for, say, 1979-1982."
Why? Why not look at a 1913-1979 chart? Or a 1971-2009 chart? We can't take one small slice of time during which there is a mania and draw a general conclusion. And you just can't look at the price in one fiat currency and draw a general conclusion about the future, particularly when the underlying conditions are very different. Gold, and to a slightly lesser extent silver, have proven to be the free market's choice of a stable monetary media. Fiat money is not chosen by the market but must be imposed by legal tender laws and taxation rules that permit no competition to the script created by the central banks.
It is my guess that we are a long way from being in a bubble and as support I point to this comment by Tyler and many other similar comments in the financial press. What is laughable is the sentiment among the newsletter writers, particularly those oriented towards precious metals. Many of them have been very bearish on the metal for extended periods even though they claim to believe in the yellow metal over the long run. As such, anyone foolish enough to believe that these people could predict the short term moves is probably looking at lower returns than those saw what was happening, took positions and sat tight because they knew the fiat currencies in which most debt is denominated are heading for the dustbin of history.
Posted by: VangelV at Nov 17, 2009 9:16:11 AM
"By the way, Jonathan, I recall Tyler including a 15% allocation for gold in his "recommended" portfolio (with the other 85% being diversified government debt"
Government debt is probably the riskiest asset class at a time when a country is broke and engaging in quantitative easing. Perhaps he meant government debt issued by a more prudent country like Brazil. :)
Posted by: VangelV at Nov 17, 2009 9:19:14 AM
