Top Ten Signs of a Precious Metals Bubble
Recent price spikes and increased volatility in gold and silver markets have many observers predicting a dramatic popping to what they claim to be a precious metals bubble. However, after having sold physical precious metals to the public for the past five years, I can attest that none of the characteristic signs that have typified bubbles in the past are visible in today's market.
Though metals prices have indeed risen strongly; those gains have come from ridiculously low prices reached at the end of a twenty-year bear market. To consider metals prices too high in this market makes as much sense as saying current technology stock valuations are too low relative to their 2000 peaks. In fact, despite the current run-up, precious metals prices remain well below normal levels when measured against other asset classes.
I have owned mining shares in my personal account for years, yet not a single share has split. Despite significant appreciation, the total capitalization of the mining sector remains tiny when compared to the overall market. There are many individual S&P 500 stocks with market capitalizations greater than the combined capitalization of all the gold stocks in the world. In fact, Newmont mining remains the lone gold stock in the S&P 500.
I am certain that if we were in the final stages of a speculative blow-off, my gold stocks would have split many times over; gold stocks in general would be far better represented in the S&P 500 Index and would constitute a far greater percentage of its capitalization. In addition, a much higher percentage of our nation's wealth would be concentrated among mining tycoons and precious metals investors (hopefully myself included), much as was the case with dot com billionaires and today's real estate moguls.
In addition, while it is also
true that the financial media has increased its coverage of metals
and mining shares recently, what else are we to expect? After
all, such performance cannot be completely ignored indefinitely.
With the broad markets flat and uninspiring, would you
not expect the media to focus attention on where the action is?
Certainly the mere fact that they do is not de facto evidence
of a bubble.
As I am on record as having
accurately recognized both the stock market and real estate bubbles
while each was still forming, my track record on bubble spotting
is strong. In contrast, most pundits who claim the precious metal
market has crossed into bubble territory were blindsided by these
prior bubbles. Since many of these doubters do not even understand
why the believers are buying, their natural conclusion is that
a speculative bubble must be underway. After all, if buying gold
was a smart investment, they would be doing it themselves.
As an experiment why not do the following: Stand on a busy street corner and ask those passing by the following question -- Excuse me, but I want to buy some gold coins, would you mind telling me where you buy yours? My guess is the answers would be something like; "I do not buy gold," "Why would I want to buy gold?" or "Why do you want to buy gold?" Now, ask the same individuals where they buy stocks, or which real estate broker they use, and I am sure you will receive a much different response. Are you starting to get the picture?
For now, the precious metals bull market climbs a classic "wall of worry." Once fear gives way to greed, there is no doubt in my mind that this major precious metals bull market will ultimately produce a speculative bubble. However, such a development is years from unfolding. To help identify when a precious metals bubble might actually be about to pop, I have composed my list of the top ten signs to watch out for.
Top ten signs that a precious metals bubble is actually forming
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Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange