Is Gold A Bubble? 14 Charts, The Facts And The Data Suggest Not

Tyler Durden's picture

From GoldCore

Is Gold a Bubble? 14 Charts, the Facts and the Data Suggest Not


For more than 3 years - since gold rose above its nominal high of $850/oz in February 2008 - there has been much talk about gold being a bubble.

Nouriel Roubini, professor of economics at New York University's Stern School of Business, is one of the more prominent financial and economic experts who said gold was a bubble and many other experts internationally echoed his sentiments.

On December 10th, 2009, with gold at $1,100 per ounce, Roubini, said, "all the gold bugs who say gold is going to go to $1,500, $2,000, they're just speaking nonsense". Roubini went on to say ,"I don't believe in gold."

Gold has now risen 50% since then and Roubini has been silent on the gold price.

We believe that he was wrong regarding gold as he, like many in the western world, is simply not aware of the facts and the fundamentals driving the gold market. He also is not aware of gold’s diversification benefits.

The fundamental drivers of the gold market are not appreciated by most and rapidly get forgotten by many due to the daily barrage of noise and fear emanating from the markets.

The facts and charts below strongly suggest gold is not a bubble.

However, even if it were a bubble, those calling gold a bubble should acknowledge the diversification benefits of owning gold and urge diversification rather than vainly trying to predict the future and the future movement of asset prices.

Gold Drivers

The precious metals of gold and silver are driven by a wide variety of factors, including money supply, debt levels, currencies, CDS spreads, interest rates, inflation and fabrication demand from downstream sectors such as jewelry, electronics, and solar applications.

Investment demand has been one of the primary drivers more recently as investors have used precious metals as a store of value in the face of dollar and currency depreciation as well as a general hedge against inflation.

Investment demand includes significant and growing demand from store of wealth buyers in Asia, investment and diversification demand from hedge funds, pension funds and central banks and monetary demand from central banks.

This demand is due to concerns about the global economy, growing inflation risks and the real risks posed by currency debasement being seen globally.

Gold remains the preserve of the smart money, many of whom predicted the current financial and economic travails. 

Risk aversion and concerns about wealth preservation due to currency depreciation remain the primary demand drivers.

Demand is due to ‘risk aversion’ hedging and diversification and can be broadly characterized as ‘prudent diversification’ rather than the ‘fear trade’ that some have called it.

There is no irrational exuberance or broad based belief amongst journalists, analysts, experts and the public in general that gold is a one way ticket to being rich. Indeed, there continues to be very little coverage of gold in local media and only the occasional coverage in the non specialist financial press. This is especially the case in the UK and Ireland and in the European Union.

There is no “greed trade” or buying of gold by the general public in the belief that making a return or a profit is guaranteed.

This was seen in the Nasdaq bubble and more recently in the property bubble that afflicted western countries.

Thus, retail demand, contrary to some hype and silly talk of people “piling in”, remains negligible but is gradually increasing from a very small base.

Increasing global demand (especially from Indian and Chinese savers, investors and their central banks) is being confronted with anemic supply as mining supply is marginally lower than the record levels seen in 2001 (see chart below).

This year scrap supply (due to the global ‘cash for gold’ craze) will be much lower than last. Hard pressed consumers internationally, and especially in the western world, have already misguidedly parted with the ‘family gold’.

All of the gold in the world that has ever been mined, if refined (0.9999 pure), would fit into a 21 metre high cube and is very rare. Thus, if even a fraction of flows in global capital and currency markets flows into gold, prices could rise very sharply and go parabolic.

Another factor, not known by most, is the massive concentrated short positions held by a few Wall Street banks.

The Gold Anti-Trust Action Committee (GATA) has gradually amassed evidence of market manipulation and a covert attempt to keep gold and silver prices low. Its London conference is this week and will hear from very astute analysts that there is now the real risk of a massive short squeeze that will lead to a gold cartel losing control of prices and a parabolic surge in the gold price and significant dislocations in financial markets.

GoldCore does not endorse GATA but has always found its work thorough and thought provoking. Indeed, its key contention has never been refuted or rebutted by the banks in question or in the media.

Should gold go parabolic, it may be time to reduce allocations to gold – but we appear to be a long way from there yet.

This is not the end game which unfortunately looks increasingly like an international monetary crisis – centered on either the U.S. dollar or the euro or both.

Having looked at the reality of supply and demand in the gold market let us now look at some important charts courtesy of Bloomberg Industries. 

Gold Charts

These 14 charts from Bloomberg Industries strongly suggest that gold remains far from a bubble.

Declining U.S. Dollar Continues to Drive Precious Metals Higher

A declining U.S. dollar has been one of the primary drivers for precious metals. If the historic negative correlation between the dollar and precious metals continues to  persist, further dollar declines will ultimately be positive for precious metals.

Gold Outperforms Currencies as Demand for Hard Assets Rises

Dow-to-Gold Ratio: Financial Assets vs. Hard Assets

The ratio of the Dow Jones Industrial Average to gold displays the cyclical nature of the battle between paper and hard assets.

Paper assets (i.e., financial assets) have excelled when economic growth has been strong. When growth has faltered or the outlook was less certain, hard assets have outperformed.

Gold and TIPS Moving in Tandem Amid Record Low Interest Rates

Record low interest rates have moved gold and TIPS higher in  2011. While the correlation between gold and TIPS declined  earlier in the year, the recent rise suggests investors are more willing to pay more for inflation protection. New highs in the gold  price may be signaling increased TIPS prices and inflation expectations.

World Gold Production – 2000 - 2011

China Consumers Increase Jewelry Purchases at Quickest Pace

China has been the largest buyer of gold jewelry since  2008; its demand has grown rapidly during the past decade,  and it has surpassed India, which had been the largest  buyer for decades.

Chinese consumers are fearful of rising inflation, and have diversified into gold.

China and India Jewelry Demand Rises

Demand for jewelry has increased steadily as individuals buy gold and other precious metals as a hedge against inflation.

China, in particular, has had a large increase in jewelry demand, spurred by a change in government rules allowing easier access to precious metals.

U.S. M2 Growth Expands in June, Correlates High With Gold

The U.S. M2 money supply accelerated in June to a 6.0% yoy pace, the highest reading in 22 months. The U.S. consumer price index (urban consumers) remained at a 3.6% yoy pace in June, in line with May's results. The correlation between the total U.S. M2 and gold has exceeded 0.90 since November 2004.

China M2 Money Supply: M2 Growth is Decelerating, Yet Still Rising

Gold Moves Higher with Chinese Inflation

China’s M2 money supply has been rising by 20%, Switzerland’s by 25%, Russia’s by 30%, and the world’s by 8%-9%. Japan’s M2 is expected to move higher after recent events. In order to fight economic and debt issues, paper currency has been printed at historically high levels.

Rising Debt Levels Drive Gold and Silver Higher

Precious Metals Outperform Other Asset Classes

Institutional investors have avoided precious metals during the last decade. Comparable performance from other assets such as stocks and bonds has been poor and as this gap widens and the need to diversify intensifies, institutional ownership in precious metals could increase driving prices higher.


As a percentage of assets, gold ownership remains negligible vis-à-vis assets such as equities and bonds. Ownership of gold is likely to be less than 2% of global investable assets. This is in marked contrast to the end of gold’s last bull market when gold and gold stocks accounted for over 20% of global assets.

Gold remains badly analysed, under-owned and under-appreciated. This will change in the coming months and years when the importance of gold as an investment and currency diversification and as a store of wealth is appreciated again.

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oobrien's picture

Gold IS in a bubble in the sense that the United States government will kill it if it threatens to become a currency.

Don't underestimate Uncle Sam.

The U.S. will start taking measures when it passes 2000 dollars.

It's all a rigged fucking game.

Just my 2 cents.

SheepDog-One's picture

Problem with that is, gold isnt only in the US. When all the other big nations are saying 'Yes, gold is the new world currency and we're stockpiling it' what does Uncle Scam do about that? Launch nukes? Gold plate some more tungsten bars?

oobrien's picture

Gold just isn't a threat to the dollar.

It's a threat to the RMB.  It's a threat to the Euro.  It's a threat to the Pound.  It's a threat to the Won.

Do you think the global powers that be are going to let average citizens own gold if it sky-rockets to 3000 dollars?

The central banks will own it.  The citizens of the wold will have it confiscated.

But maybe I'm paranoid.

SheepDog-One's picture

No gold is not a 'threat' to anything, its just the mirror of monetizers gone wild. 

BTW I dont need the lecture on 'do you assume' as Ive been the one here on ZH saying since gold was under $1,000 you will have to defend your gold against confiscation and be a felon when its banned and illegal to trade. How many are really considering that?

hardcleareye's picture

There are no "safe havens" for what is to come.

The Limerick King's picture



The "bubble" in gold is a ruse

Like Genocide Ben drunk on booze

He needs to stay straight

To correctly inflate

While denying such acts in the news.

Cognitive Dissonance's picture

I love The Limerick King.

Maybe you need to be my editor. I pay poorly and usually not at all. Best work around though considering the 17% unemployment rate. I would rather owe you your wages than cheat you out of them. :)

akak's picture

A thunderous din

Printing press roars, Ben cackles

Which is the louder?

RafterManFMJ's picture

They've said my gold’s in a bubble

And it’ll have no use in the rubble

Tho I got in late

And bought it at 8

I’ve watched it inflate, in fact it has doubled!

mayhem_korner's picture

So he who has the most gold wins?  That argues for upward price pressure.

Cognitive Dissonance's picture

Agreed. But those of us who own Gold Miners are not feeling much joy lately. Can you say divergence?

GDX vs GLD 2 years

mayhem_korner's picture

Victimized by the fact that their swimming in the same current with other equities (and not a favorite among equity bugs anyway).

Gravity will win out.

Cheesy Bastard's picture

There is also considerable counterparty risk.  Mines can easily be nationalized.

mayhem_korner's picture

Good point.  They're not very portable.

Cognitive Dissonance's picture


But Miners traditionially have been the play to leverage Gold prices. As you can see from the chart they have not even been a 1 to 1 play. When people begin to believe in Gold, will Miners finally catch that rocket?

mayhem_korner's picture

Unless, as cheesy points out, TPTB swoop in and take over.  If not, I would expect the mining companies to fare well.  Whether the actual miners (workers) do, well, that's another story...

Cognitive Dissonance's picture

While I agree there is that risk, not here, not now. Gold will need to go much higher and panic set in before the Miners are seen as the way for the CBs/PTB to attain heaven.

This 5 year chart of GDX vs GLD is very telling.

GDX vs GLD 5 yr

Smiddywesson's picture

I think nationalization of mines is more likely than confiscation of PMs.  In the US, the environmental ploy would be my best guess, saying that these mines are big polluters and making their operations unprofitable because of baned techniques and fines. 

Cognitive Dissonance's picture

I ran some charts and that doesn't seem to be the case. Miners have been clobbered since May much worse than the S&P and only in the last 3-4 weeks have they responded well. Miners, while always affected by general stock trends, usually respond well to Gold price increases. This time has been the exception compared to over the last 2 years.

Much catching up to do.

GetZeeGold's picture


The equities are tied to goes the go the miners.

You want to have physical right now.....real and in your hand.


trav7777's picture, think about what you are saying.  Do you think the average person is going to be ABLE to own gold at $3000 an ounce?

How many ounces is the average monthly salary going to be able to run out to the coin dealer and buy?  None!  Sheeple are net SELLERS of gold.

oobrien's picture

Brother, the more things change, the more they stay the same.

It used to be illegal to own gold in America.  That's just history.

If you do manage to buy gold, it will be illegal and on the black market.

The powers-that-be aren't going to risk their wealth so that gold vigilantes can prosper.

It's a fixed game.  

mayhem_korner's picture

History shows that TPTB have always fallen to greate forces.  There is no infinite tower.

BigJim's picture

When FDR confiscated gold, anyone who had any money at all had gold, because gold was money.

Who owns gold now? Yes, gold bugs (what percentage of the population are they? 1%?) may have a few miserbale kilos stashed away. But most of it is held by central banks and people like Soros and the Rothschilds - ie, the politically well connected. I can't see confiscation going down well with them, can you?

mayhem_korner's picture

Sheeple are net SELLERS of gold.

I think you may have just coined the definition.

fuu's picture

When you're right you're right.

Floordawg's picture

EXACTLY! Plus, TPTB would have an easier time manipulating the price(s) when J6P, Chinese/Indian buyers, etc. are priced outta the PM game. Wonder what that "magic" number would be? With all the recent economic data of late, seems like the current price would suffice!

Pegasus Muse's picture

Do you think the average person is going to be ABLE to own gold at $3000 an ounce?

That's why they mint gold in sub-ounce weights.  For example:

Floordawg's picture

...too much Celente will do that to you, that lil guy gets excited!

FranSix's picture

If its such a threat to the Won, the South Korean central bank seems to have a different opinion, actually buying gold at market:

oobrien's picture

Brother, I was in South Korea in 1997 when it was raped by the IMF.

For that time period, it was the biggest bailout in history.

Do you know what the government did?

They "asked" the people for their gold.

And the people turned it over.

Central banks owning gold is far different than average citizens owning gold.

BigJim's picture

People wise up. Even the most obedient Asians will think thrice about sacrificing their gold for the collective, having watched it quintuple in price after they did so last time.

Voluntarily gve the overlords our gold? Hmmm... maybe not this time.

Caviar Emptor's picture

Again, they would have to tender a price at or above melt value as they did before. 

sskid's picture

Spoken like a person who owns no gold.

Smiddywesson's picture

I agree with you that gold and silver are the enemies of all fiat, because the PMs show that paper is utterly worthless and they provide a yardstick with which to measure how much TPTB of the world are stealing from their citizens. 

You do not have to appologize for being paranoid when it comes to money.  Most conspiracy theories are not true, but most concerning money are true.  That's the nature of money, it takes too long to make it honestly, so clever little apes instead focus on forming conspiracies. 

With respect to confiscation I can't say you are wrong for thinking there will be some, especially in countries where it has been effected before, like the USA.  However, this time is different:

Almost nobody of any significance holds gold.  It accounts for only 2% of worldwide assets and most of what exists is in the vaults of the central banks.  You can bet the people who form policy also have some squirreled away.  If the public doesn't have any gold, and the people in power do, why would they make the holding of gold illegal?

The necessity to confiscate does not exist this time around.  There are no gold coins in circulation that the Treasury has to collect and melt.  That wasn't the case in the 1930s.

Confiscating all the gold and issuing useless paper like in the 1930s involved convincing everyone that all was well and cash is king, while gold was just a barbarous relic.  Fixing a destroyed fiat currency will work that logic backwards.  You collect all the worthless paper and issue something which is purported to represent real value.  That paper has to be "backed" by something for people to accept it.  Most of the people here on ZH believe it will be backed by gold, or at least partially backed in some bastardized version of a gold standard.  They were able to make a logical (if false) argument in the 1930s that they were taking unnecessary gold off your hands for real money, but the logice doesn't work if you are going on a gold standard and taking gold from the public at the same time.  After seeing paper go to zero, it is harder to snow the public. 

Confiscation would create a confrontation.  They don't want confrontations.  They want you to go to sleep and become ignorant and pliable. 

TPTB are going to get all the gold they need to make the system that keeps them in power run.  If they need more than they can aquire before we switch to a new system, they will just ramp the price of gold so it is worth enough to liquidify the system.  That means big winners and big losers, but since they are among the big winners, why should they care?  They will eventually get your gold anyway.  Eventually, you will have to sell your PMs to buy the necessities of life, and that will allow TPTB to slowly acquire the small amounts that the public holds.  

They don't need to confiscate.  Confiscation is an impediment to what they want (a smooth transition without pitchforks), and confiscation goes against their personal interests.  So, my guess is no confiscation. 

cynicalskeptic's picture

Confiscation occurred in the 1930's for VERY different reasons.

In the 1930's there was no FDIC.  People pulled their savings from banks and - literally - put their money in mattresses or buried it inmason jars in the backyard.  Otherwise they might lose their money in a bank run.  Keep in mind the bank robberies that occurred - think Bonnie and Clyde, etc - could also mean the collapse of a small town bank.   As a result, there was a very real SHORTAGE of money.  There were not enough banknotes in circulation to conduct commerce.  

This was not a new phenomenon and occurred in the 1800's with regularity when there were nonational banknotes but only locally issued notes.  The lack of a national bank and national currency exacerbated this situation until the creation of the Federal Reserve.  (as bad as that 'solution' was it DID create a national currency).

AND with no money in banks, there was no money to lend - back in the day, banks needed SOME money in their own reserves to lend out any funds.  In fact banks were seeing massive losses on existiong loans - a destruction of capital.

BY LAW the dollar was still fractionally backed by gold in the 1930's.  You could not print more banknotes - eg create more 'money' unless you had gopld to back it.   With money being hoarded (held out of circulation) and not available to conduct commerce, there was a need for more currency.  

The confiscation of gold (and its revaluation) was a means to increase the money supply.

There are no longer ANY limits to the creation of money.  You can create TRILLIONS electronically and print to your hear's content now.  

I suspect that you COULD see some form of 'confiscation' for gold held in large funds like GLD (if it'as really there) and third party vault concerns holding gold for your IRA account and such.  These facilities hold large amounts in limited locations and are easy to access.  I suspect that much of the gold holdings in the US are in such vehicles.  You might also see nationalization of domestic minig - abrogating agreements like those CDE has wirth China who buys gold ore concentrate from them for refining.

I further suspect that any LARGE private bullion holdings are in the hands of very wealthy and powerful people - those that pull the strings of government.  THEY would not allow THEIR holdings to be confiscated.

The effort to go after small bullion holders would be prohibitive - compared to the return.  The risk would also be major as many small bullion holders seem to be anti-government libertarian types - well armed and already paranoid enough about a coming 'collapse'.   Besides, even under FDR, the government never made any effort to pursue such holdings - this was a VOLUNTARY 'turn-in' of gold. I doubt you'd see the private holding of gold made illegal - again wealthy, powerful large holders would not allow this.   You likely WILL see more vigorous controls on the sale and purchase - with a focus on collecting capital gains taxes - intersting to see of moves in Congress by more libertarian reps to eliminate capital gains on gold and silver evere make any progress (I doubt it).  

The US would be in an interesting conundrum if it tried to rein in private gold holding too much.  While the legislation enabling - mandating - the production of gold and silver coins was enacted to guarantee an outlet for US mine production back when precious metals prices were low, this legislation remains in effect and revoking it would face substantial opposition from western mining interests and libertarians.  It would also make a very public issue of gold and silver - something the US government does NOT want.  They have in fact gone to great lengths to downpay perecious metals as an 'investment' or even 'strore of value' - going so far as to actively suppress prices (see GATA's work) in an effort to 'manage perceptions.'   See 'MOPE - management of perception economics - and Rubin(?)'s paper on lower gold prices reducing interest on government debt (gold as a barometer of fiat strength).

If you look at the current status of gold in the US, you stillhave very minimal private investment holdings compared to elsewhere.  US citizens have never been through the type of economic crises seen elsewhere in the world.  Europeanshave Yugoslavia, the Ukraine and further back, Germany and Hungary as examples of currency collapses.  The rest of the world has never trusted paper money and wealth ahs been stored in alternate vehicles through history.  Vietnam which has a high inflation rate has unsuccessfully tried to better contrul gold holdings of its citizens.  Meanwhile China and India have made it easier for their citizens to both hold metals and actually use those stores of value (Indian banks now loan funds on gold).

In contrast, in the US you have investment advisonrs actively DISCOURAGING people from holding gold.  If you insist, they push you towards paper vehicles like GLD.  A case can be made that these vehicles are being used to divert demand away from physical buying and into these funds which may be holding 'borrowed' bullion.  The GLD prospectus is full of holes and legal 'get out of jail' clauses for the fund administrators.

Indeed, most ordianry people are SELLING gold now - often for far too less to walk-in shops.  They think of this as being like the 1970's where a run up in prices is temporary (not seeing a fundamental change in the status of the US dollar and the gorwing flaws in the financial system).  They are also being squeezed themselves economically and welcome the chance to turn small gold holdings - often jewelry - into cash.   They view tjhis as a 'windfall' not as a long term safe haven store of buying power.   I suspect that you are seeing gold and silver being vacuumed up from the 'sheeple' now - at what will soon be bargain basement prices.   when - not 'if' - things get worse, those selling now will not have ANY material assets of real value left to cash in.   Meanwhile, you hear anecdotal stoies of serious money buiilding up THEIR holdings of precious metals - and anything else that represents real stores of value (hence a run-up in commodities prices and the shares of copmapnies with real hard assets).

Under this scenario, you will have very little gold left in private hands - and that which remains is likely to be converted over into cash over time to meet living expenses.  


spartan117's picture

How are they going to "kill" it?  They're going to forbid the rest of the world to own gold?

Bastiat's picture

There are some who think there is no "rest of the world" they believe they create history and reality. They are insane,  You can see it the Iraq and Afgan/Pak disasters and in the actions of the Treasury, Fed and Congress.

DonutBoy's picture

Why does the US want the price of gold under $2000?   As Jim Rickards has said, Obama's plan is to double exports in 5 years.  That only happens if the dollar continues to depreciate.  If the price of gold is $5000 perhaps we can export Chevy Volts.

malikai's picture

In the last 3 years the dollar value is down over 50% in most commodities. Have US exports exploded since then? How much lower must the dollar go before the US exports anything besides paper and death?

BigJim's picture

Interesting question.

This is a bit of a tautology, but the US will become an industrial exporter again when it is competitive. Which means production costs in the US will have to fall, or production costs in other countries will have to rise, or a combination of the two.

We will see this when the US is no longer spending so much on its military, and when its labour laws are relaxed, or the dollar drops so much that minimum wage is irrelevant.

cynicalskeptic's picture

What's left ot export?  Our industrial base - the means of production - has already been 'exported'.  

Agricultural products - food - remains a big export BUT with every ton of grin we're exporting the oil we IMPORTED that fueled the tractors and combines, made the fertilizer needed to grow it.  Hectcres of water pumped from aquifers (not beintg replenished) also gest exported.  If you price food in terms of REAL and TOTAL costs, we are foolish for 'giving it away' at any cost when the arable acreage in the world is declinging.  China is buying u arable land in Africa and elsewhere at a breakneck pace

BigJim's picture

It's true that our industrial base has been exported. But this statement makes it sound like some kind of final, irreversable act.

If the US becomes a competitive environment in which to run industrial businesses, they will be just as quickly imported back.

Pladizow's picture

Gold id the second coming  - here to save the financial/economic world - pay homage and repent now!

mayhem_korner's picture

Not so sure about that.  Lotsa foreign CBs loading up on gold, which will make it tough for U.S. to coerce a sell-off without creating "act of war" sentiments.

Also, practically speaking, where would the bux flow to from a coerced selloff?  Crashing Au would boost the dollar, making it even tougher to melt away the debt, which is the grand plan.

I would argue that confiscation is a more likely route than killing gold.  Wouldn't want to have to expose all that tungsten sitting in Ft Knox...

trav7777's picture

by that point, who is going to obey?

mayhem_korner's picture

I dunno.  I know I won't.

malikai's picture

Exactly, and many of us have already taken steps to make sure most of our gold and silver is well out of the knowledge and reach of bankers and governments. In my case, the US government knows I've bought gold, but I'm outside the US, so good luck with that Uncle Sam. Also, the country where I live knows about some of my purchases, but again, my metals are unlocatable even in this country, not to mention the stash I've put away in a third country.

Smiddywesson's picture

Also, practically speaking, where would the bux flow to from a coerced selloff?

Agreed.  Once they have all the gold they can acquire, it will be in their best interests for the price to go up, not down.  They can thereby make the banks solvent and soak up all that extra liquidity they printed and lock it safely away in their gold vaults by making the price of gold go up, not down.

They have had four years to replace the gold in Ft. Knox.  It would be incredibly stupid of them not to have begun replacing that tungsten when it was clear the end was approaching.  A general acknowledgement of that theft would threaten TPTB's continued existence and they intend to survive the coming events.  (They can always steal it again when the dust clears).