Posted on 03/29/2011 10:00:27 AM PDT by Atlas Sneezed
If a picture says a thousand words, then the image below speaks volumes against accusations of a bloated asset bubble in gold.
I'm sure you've seen the invariably confident claims that gold must represent a bubble, backed by deeply unscientific litmus tests. It must be a bubble, because "my mother recently asked me if she should buy some." (Psst! Hey, Mom ... Yes!) Others may feel compelled to sound the panic alarm because -- gasp! -- commercials have appeared on television to sell the yellow metal.
Of course, those anecdotal arguments against gold exposure have proven incorrect time and time again. With each successive breakout to fresh all-time highs, gold continues to confound perennial bubble callers with the sheer strength and continuity of its secular bull-market run.
Concealed amid the cavernous disconnect between the equally entrenched outlooks of gold bulls and bears, however, lies a basic and crucial consideration that bubble callers have persistently overlooked. It's all too easy to presume that a bubble exists when an asset gains value and attention quite rapidly. But one careful look at the relative historical context offers enormously compelling evidence that gold's historic resurgence retains ample room to run. At the core of gold's momentum is not a fear-driven speculative frenzy, as many have argued, but rather a protracted revaluation event for a global currency that had been all but tossed into the world's collective wastebasket.
I know we are all busy Fools, but I need you to take a moment to fully absorb the implications of the following chart:
(Excerpt) Read more at fool.com ...
The article’s conclusion:
I believe that gold will keep rising well beyond my conservative long-term price target of $2,000. As I stated last year: “Gold’s legitimacy was never lost; it was merely forgotten, ignored, and then grossly misunderstood.” Restoring what is truly the ultimate currency from the brink of supposed irrelevance to its rightful place within the sum of global asset values requires a monster move, and 0.8% of the total by 2009 does not even begin to convey a bubble.
Give me a shout when gold reaches even 5% of global assets. Perhaps then, it’ll be time to evaluate whether gold’s really a bubble. For now, however, I view some manner of gold (or silver) exposure as a basic financial imperative.
That’s an incredible chart. I’m not saying I don’t believe it, but it seems incredible. How can it possibly be true? What changed in the past 30 years?
buy gold. they’re not making any more of it /s
In the first half of the last century, assets were valued with a gold standard. In the early 1970’s, the gold standard was removed. So, global wealth today is measured in inflated dollars, not gold. So, the chart really is not measuring oranges to oranges.
Notice the dates on the bottom of the chart — clearly, these dates have been cherry-picked. A credible chart would have been based on a regular interval; or even be a line chart, with data for every year shown.
Its going up for a long time.
I am just guessing, here, but I suspect it is because the denominator (bottom) of the fraction - total world assets - expanded greatly over the past 90 years, while the numerator (top) of the fraction expanded only moderately.
The term "world assets" must include EVERYTHING - the total industrial base of all of the countries of the world, the military assets (aircraft carriers, etc.), the total number of automobiles and trucks, oil tankers, airplanes, dams, factories, canals, skyscrapers, all privately-owned cell phones, satellites, space shuttles, etc. - literally everything.
Consider the total value of the country of, e.g., Saudi Arabia in the year 1921 - and compare it with its value today. Take even a less obvious example, like Pakistan. In 1921, Pakistan wasn't even an independent nation, but let's pretend it was. How would you rate the military might (to name but a single aspect) of Pakistan in 1921 as compared with today? Modern-day Pakistan, if miraculously transported back in time to the year 1922, would undoubtedly be able to conquer the combined military might of all of the rest of the world's armies and navies.
In view of that, it's no wonder than a mere, e.g., 50-fold increase in the value of gold, and the paltry pentupling of the tonnage of extracted gold, should pale in comparison.
Regards,
Agreed.
Gold periodically accounts for the entire money supply by rising to equal it in buying power. The free market bids up the price as people seek to move their buying power from currency to true money ( = something which stores value).
When that happens, Gold will rise to over 12,000 dollars an oz.
Long live Ragnar Danneskjöld.
You might want to have those FUBO coins assayed. I doubt there’s any more gold behind that face than there is behind our debased currency.
Speaking of funny money, I spoke to a WW2 vet who was stationed in Japan immediately after the war ended. He and his buddies lived it up passing out Monopoly money as Military Occupation script money for a few days until the Japanese wised up!
Good points...
If I am understanding the chart correctly then, the value of gold is at a very small percentage of the total value of all of our “stuff”. This would make sense to me...I have a lot more “stuff” then I do gold, and I would think that would be the same for most people.
To call that chart incredible due to “cherry picked data” is sort of whistling past the grave yard.
Had another year in the late 70’s or early 80’s been used in place of 1981 the difference would likely have lowered the column only a few percent at best.
Had data for 2010 even been available in place of the column for 2009 the difference would probably not have been a percentage point.
You may well find the chart unimportant, but it is entirely credible.
A far better chart would have shown continuous data (say a line chart, with annual data). The events mentioned in the article could have been marked by vertical lines, at the corresponding years. That would have put the data into context, and would prove that it wasn't simply cherry-picked. Also, continuous data would have provided some information regarding trends.
The thesis of the article may, or may not be right. The chart does nothing to advance it, and actually makes it less credible (because of the obvious cherry-picking).
A far better chart would have shown continuous data (say a line chart, with annual data). The events mentioned in the article could have been marked by vertical lines, at the corresponding years. That would have put the data into context, and would prove that it wasn't simply cherry-picked. Also, continuous data would have provided some information regarding trends.
The thesis of the article may, or may not be right. The chart does nothing to advance it, and actually makes it less credible (because of the obvious cherry-picking).
Respectfully, I disagree.
You could, for instance, mark specific years on a line graph, by using vertical lines — e.g. a vertical line at each of the years mentioned in the article, with an appropriate short label.
The chart in the article doesn’t allow us to compare what’s happening in other years, with the years selected. We’re left with having to take the author’s word for the significance of the data actually selected. That should make the reader wonder why the other data has been left out.
The interval graphed could easily be the same as the interval in the chart. Nothing arbitrary about that. What does seem arbitrary, is selecting data points that make your case (and leaving out ones that weaken it?).
Once again, I’m not trying to argue against the author’s thesis — I’m just pointing out bad graphing practices. There’s a lot of lying with statistics and graphs used against conservatives — it’s something to beware.
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