Popping the Soros Gold Bubble
I'm back from an incredible journey of discovery, and my first order of business is to pop a bubble: the George Soros gold bubble.
If there's one notion relating to gold that I observe most unnecessarily confounding the prospective precious metal investor, it's this useless application of the word bubble in reference to gold. By my reckoning, the only time that word becomes helpful is when an asset class soars over time in the absence of a discernable fundamental basis for the move.
There may come a time when I will become comfortable applying the term to gold, but not before the identifiable fundamental drivers for higher gold prices fail to continue accumulating. Somewhere north of my $2,000 price target for gold -- which incidentally is shared by Soros' former business partner Jim Rogers -- we may eventually witness a dramatic spike that could render new investment in gold an exercise in dangerous and untimely speculation. But until those cows come home, I will reassure gold investors that we are a very long way removed from the inception of a final blow-off phase for gold's multi-year bull market run.
Whether they're locking in profits from recent gains in broader equities, or fleeing wisely from the true bubble that is the market for U.S. Treasury bonds, I sense that many of my fellow Fools are at a loss to identify asset classes in which they feel confident allocating fresh capital. Aside from reminding investors that cash can be an important tool in a high-volatility environment, and with the caveat that allocation strategies must be carefully tailored to suit each individual's unique circumstances, I wish to dispel the notion proposed by Soros that gold does not represent a safe investment at this point in time.
With the $1,000 price level offering what Marc Faber and I both consider a cement floor beneath gold prices to last for the remainder of this secular trend, I would argue downside risk in gold under the prevailing macroeconomic climate is limited. The upside potential, meanwhile, remains subject to the likely exacerbation of impairment to the world's two major reserve currencies over the years to come.
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