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Thursday, June 24, 2010

Is Gold Getting Too Popular?

Some gold investors are getting a little jittery, as the growing popularity of gold, especially as it becomes increasingly reported on by the mainstream press, has them wondering if we're approaching gold bubble status.

Taking the housing market and Tech stocks of the last ten years or so as examples of bubble markets bursting, we're far from that happening with gold, for several reason.

First is the lag time from information reaching someone, to their digesting it, and finally acting on it. That can take years in some cases to come about; the reasons bubble emerge, as everyone suddenly embraces the herd mentality and bypasses their thinking and go straight to making decisions based on emotion.

That aside, from a practical point of view, the other things related to housing and take was people borrowing to feed the frenzy, which hasn't began to happen yet by ordinary investors, who in general really haven't started putting money into gold.

When the gold investing mania truly begins, we'll see the loss of rational in people, and then their doing almost anything to get their hands on gold, just like they did with tech stocks and homes.

Until the ordinary person on the street starts talking gold and investing in gold, and then going beyond that to looking for ways to borrow even more in order to secure more of the yellow metal, I don't think we'll have to worry about a bubble.

A bubble doesn't exist because gold prices, or any other investment goes up, it exists because the prices of something go up for no reason whatsoever, which what investing mania leads to.

We can't be afraid of gold prices going up, as the underlying fundamentals are there to justify it. We also can't be afraid of temporary corrections, which falsely imply a bubble could be ready to burst, when there is no bubble in the first place.

Now that the mainstream media has finally picked up the gold story, we do have to watch closer, but we still don't see that many ordinary people buying into gold yet. Only then should our ears perk of and our eyes stay open concerning a potential bubble.

And then we need to look to how people are going about buying gold. Once leverage comes into play, we're probably getting close to a bubble, and the bursting of that bubble. Until that happens, we should be safe.

The bottom line is still the fundamentals, and everything happening in the macroeconomic world today justifies the price of gold and it continuing to go up.

Even if it goes beyond where it is expected it should be, we still need to pay attention to whether or not the fundamentals are still in play. If they are, there will still be price support at some point.

And that is what we need to pay attention to more than anything else if and when a gold bubble emerges. We need to know where he entered the gold market, as far as the price of gold, and how long we want to or are able to stay in if it in fact looks like a bubble is forming.

For those buying gold at different price points, we can afford to be more patient in finding out where the support level is, and whether or not to sell, or how much to sell.

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