<font color=gold>Hi chic-- Re: Here's a question that may have been answered before. I have trouble figuring out what's the biggest bubble; the US stock market, the US real estate prices, or the US currency? If one of these bubbles bursts, won't gold rise in any case? Specifically, if the Dollar crashes? To the naive self, it seems gold is low in US dollars because the US dollar has been inflating so much compared to the rest of the world currencies.
The bubble question is easy: US stock market >> US Real Estate >= US currency. The real estate is basically an issue in a few metropolitan areas. If you were to calculate an average price/(square foot of average quality housing) for home values across the entire country, you would get a value that would be several orders of magnitude below the mother of all real estate bubbles-- Japan in the late 80s. The US currency situation is arguably a bubble, but, is certainly largely due to the recent crappiness of other countries (ie: they have a lot of "potential," but based on recent economic performance, our currency strength isn't all that arbitrary or nonsensical). The stock market, on the other hand, is unquestionably grossly overvalued, at almost all levels and by any historical measure. You can look at home depot at 10 times book and 54 times earnings and realize the entire stock market is overvalued (not just Mr. DAQ), whereas real estate is only bubble-esque in pockets of the country, and currency is overvalued but not necessarily at bubble proportions either.
Not to 'dis gold, as I had a friendly encounter with XAU calls I was holding during that little central bank event in October, but, given that gold was maintained at $35 an ounce for quite a spell, I don't think anyone can say with particular confidence that gold is now undervalued. Given that there have been 5,000 years of production of it and that gold is not a consumable commodity, the arguments about supply/demand imbalances based on annual production or current production costs are kind of weak. Moreover, the fact that there is a large short interest reaks of the same type of whining that longs of high-tech companies go into when their stocks get slaughtered.
I hope the thread regulars will not feel the need to excoriate me for this post.
-Eric |
