Things have now gotten completely out of hand, and I've got to say something publicly about it. I must go on-record.
(In case you were wondering, it's me, MBB, despite that very FBB-esque opening salvo).
I believe that yet another great financial bubble is building, and is sure to burst in short order.
The mispriced item in question is gold, which as of this morning was trading at a price of $1,100.00 per ounce. That price represents about a 50% increase since the beginning of 2009, and puts the precious metal's per-ounce price roughly on par with that of shoulder pastrami at a certain local deli/take-out place.
It's odd to me that gold has risen to such a price level, in the absence of any scarcity assumptions, or an increase in production costs.
Why is this happening? Who is bidding up the price of gold to these ridiculous levels?
* Investors who are betting on continued weakness in the U.S. Dollar? (Gold and the dollar tend to trade in opposite directions).
* People who are convinced that the current recession will worsen, and are seeking gold's traditional safe-haven characteristics?
* People who believe that the economy will rebound soon, with great momentum, thereby spurring a rebound in the purchase of luxury items, such as gold jewelry?
* Investors - both individual and professional - who are uncertain about the stock market, and want to increase their exposure to gold as a hedge to their stock portfolio? (Stock returns and gold prices tend to be negatively correlated over time...or so they say. I'm too lazy to look this up, and this blog doesn't make enough money yet to allow me to hire a researcher).
* People who run closed-end commodity funds, which allow the average Joe to get in on the action?
Yes, yes, yes, yes and yes.
They're all buying gold...and they're all wrong.
Six months from now, gold will be cheaper than it is today. One year from now, it'll be cheaper still.
I'm so convinced that I'm right about this that I'm willing to put my money where my mouth is.
No, I'm not going to short gold. I don't have that kind of gumption.
Rather, I'm willing to bet any of our readers that gold will be below $1,100.00 per ounce in six months, on May 9, 2010.
I will wager one cupcake with each person who takes this bet. The cupcake in question can be made of either white or chocolate cake, but must have some sort of cream filling, and cream on top. Sprinkles are optional. The cupcake can be homemade, although my strong preference is that is be purchased from a bakery of some sort. (I believe in leaving certain things to professionals, like auto repair and pastry preparation).
In order to accept this bet, please use the comments section.
This crazy gold bubble is about to burst, and when it does, it'll be delicious.
6 comments:
What do we get if we agree with you though?
Can I have the homemade cupcakes you don't want? (You bakery nuts don't know what you're missing. Your taste buds are too numbed by all the preservatives and shortening.)
Great post.
It's been niggling at me as well.
(Especially since the kallah market won't touch yellow gold lately...)
MBB I am going to take the wager. Not because I particularly have an opinion on the matter, in fact the opposite is true, I am more likely to take your side of this argument. I can just imagine the next time I am at a dinner party or some such event and the discussion comes around to the inflated price of gold, I would probably say something to the effect of "my BILMBB actually knows about these things and he is betting that the price will drop by May 9th 2010".
But I am taking the wager anyway if only to possibly convince you about the cupcake
Ill wager because grandma doesn't give ME birthday cupcakes and I really want one of those chocolate gooey thingies from Zisha's with the white cream inside and squiggly white chocolate on top of chocolate cream in the counter on the left on the second shelf.
don' wait six months to convince! You can do it now.
I'm pleased to see that my wager has been accepted. Dell, the cupcake you're referring to can be obtained, if needed. Doobie, given your chosen nom de blog, I'm assuming that you'd be more interested in a brownie if you win the wager.
I'll take the bet. Not becuase I have any particular insight into the market but because winning offers two of my favorite things
free(1) food(2)
If I lose I will need in any case to apply the adage that one can't eat alone and will still enjoy at least one of my favorite things ( 2 if I put it on a credit card (that was a joke)(really))
( by the will drakes cupcakes( can't remember their cool name) suffice?)
(parenthetically I'll take such a bet any tine))
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