Gold Price is No Bubble

The price performance of gold recently has all sorts of armchair economists waxing philosophical on the idea that this is the advent of a price “bubble”. While certainly everyone has and is entitled to their opinion, there are other features of humanity that we all possess, and much like many opinions, are best obscured from view.

Declaring that gold is in a “bubble” demonstrates complete ignorance of or disregard for the fundamental drivers of the almost ten year ascent of gold. And saying that the price is forming a bubble implies that, like the real estate bubble, the tech bubble, and the tulip bubble, the price must necessarily “pop” and return to a sustainable long term average.

During each of the bubbles of recent and distant history, the cause of the meteoric price ascents of these various asset classes were all predicated by the same string of events.

Supply was far outstripped by demand because the public perception emerged that the asset class in question was the ultimate asset class at that point in time. Disproportionately high levels of capital were directed to them, and upon the eventual discovery that supply could easily meet and exceed demand, the bubble pops, the price declines, and the herd mentality resumes its frantic search for the next ‘ultimate’ asset class.

Homes, technology and tulips are all a product of effort. With increased effort, more of each of these can be created. Supply can easily be ramped up to meet demand.