If everyone is selling gold, how can gold become the investment bubble that the CNBC commentators keep saying it is, I ask? (Joe)
First, there is plenty of gold. We don't know how much because Sovereign deposits are not generally 'reportable' by depositories. The amount of gold a country has is a state secret in many cases and what countries report doesn't mean it's a true number. And people are selling a lot of 'used' gold – which has to be melted and refined – it's not factored into the spot price.
Spot gold, like spot silver, is based on futures prices – not on the enormous OTC and sovereign sales that occur. South Korea bought 24 tonnes of gold somewhere – not on the futures market. Futures PM prices are typically out of reality for two reasons: (1) they measure 'new' metals, not recycled metal, and (2) those prices are heavily manipulated.
Once the last bit of liquidity, in the form of dollars, is screwed out of the individual investor, the price of those PMs must fall. The manipulators will have got the cash and will no longer need the bubble. It happens with every commodity, time after time, the same way. It happened with housing. The perceived value is pushed up and up and people keep buying until suddenly the price tanks and they lose their investment.
No one believes it can happen with gold. Sure it can. There was a related article on Huffpo yesterday which repeated my statement that gold has no intrinsic value. It's valuable because everyone agrees it is (except me).
So everyone can have 50 or 100 ounces of gold sitting around at a purchase price of $1,000 to $2,000/oz. and they will have the unreal expectation that it will hold that value. What will happen instead is that the price will plummet but many small investors won't sell – they will have fallen in love with their gold and will continue to believe they have hedged their wealth against the very thing they see happening.
The expectation is that eventually they will HAVE to sell and the people who sold them the gold at ~$2,000 will be able to buy it back at ~$600. If you can control millions of ounces of gold, you can create those kinds of situations. If you have a hundred ounces, you have a dream.
Imagine this scenario: One in 300 people has 100 ounces of gold – they think – it might not be real gold. Gold is a hot item to counterfeit (usually tungsten dipped in molten gold) and people buy it based on the guarantee of a two cent 'certificate'.
So 299 people have no gold and one person has a hundred ounces of what he THINKS is gold. Even if it is, how does that promote trade in a failed economy when everyone is struggling to eat and learning to live without toilet paper? What's worse, if he has just ONE counterfeit chunk and gets caught passing it, even if it's completely unintentional, the rest of his gold is worthless – just like his life.
There is always a bubble somewhere. That's what makes rich people richer. After the PM psych, it will be something else – maybe tulips or drugs. I'm thinking food and firearms and white lightning. And I'm thinkin'… soon.
The first rule of PM is 'Don't fall in love with it'. It's a chemical romance.