Individuals are starting to talk about a gold bubble burst. Investors have perceived gold as a safe haven during the global financial crisis. The global financial crisis is ending which means the gold bubble might burst, although it rose since October 2008. If investors find no need to invest in gold any longer, then the demand for gold is going to drop a lot. Gold was at record high on June 21 when it was at $ 1,266.50 when it has now dropped to $ 1,185.
Signs of a bursting gold bubble
Some say the gold bubble is about to burst because gold prices are too volatile. Seeking Alpha had a piece done by Brian Rezny stating that India and China aren’t even purchasing much gold anymore. It is assumed that gold will continue to increase in price forever for any person who invests in it. This is why individuals invested their lives into gold during the global financial crisis. Whichever investors value gold as is what gold can be valued at. If a gold bubble burst would to happen, that would all change.
European credit crisis
The gold bubble burst is affected also by the dramatic affects of the credit crisis in Europe on the economy according to Ron Acoba from the Daily Markets. Although it may be surprising after bank news from Europe and the U.S., Acoba says business is about the exact same as it always is. Rezny said that the gold bubble is about to “end in tears,” and that the recent decline in gold prices will get worse. He reminds us that back in 1980, gold was used as an inflation hedge, and it peaked at $ 850 an ounce. Adjusted for inflation, that $ 850 was equal to $ 2,300. Then it went down drastically by 1999 to $ 253.
Gold was not that safe
The gold bubble is larger than normal depending on the amount of people buying gold. Gold is even endorsed by celebrities. Putting money into gold is encouraged by Glenn Beck who believes gold is the best way to invest with the economy as it is. Beating Broke wonders what will happen if (when?) the economy recovers. Those who bought gold at $ 1,100 and $ 1,200 an ounce may see the gold price adjust back down to something like $ 800 or $ 900. If these investors lose 30 percent of their savings or portfolio, the gold bubble will burst. The price of gold will drop even further as people rush to sell off their holdings. True believers in gold will lose even more.
Daily Markets
dailymarkets.com/forex/2010/07/28/did-the-gold-bubble-just-pop/
Beating Broke
beatingbroke.com/is-gold-the-next-bubble/
