Gold Price Driver #3: Legitimate Investment, Not a Bubble
It would be silly to talk about these macroeconomic trends and ignore the plain fact that because gold is an investment, it is subject to the same buying rush and speculation as any other investment. The only question, then, is whether gold is in a bubble because of irrational buying or whether it is a legitimate investment.
There are a few signs of a bubble, surely. Some people expect gold, like real estate circa 2005, to only go up — influenced no doubt by late-night “cash for gold” infomercials.
But there also are a host of signs that gold investment is sustainable at these levels and will not just evaporate. Exchange-traded funds like the SPDR Gold Shares (NYSE:GLD) provide millions of Americans access via their IRA — putting gold investment plainly in reach. GLD actually is managing more money than the SPDR S&P 500 ETF (NYSE:SPY) these days! Sure, some of that money could rotate out to other assets. But much of it likely will stay and provide a floor for gold prices.
As for future investment, the previous two points show legitimate reasons for investing in gold along with the claptrap about “guaranteed” returns in the precious metal. So while there are suckers buying in, smart folks continue to buy into gold, too. Besides, the constant drumbeat of stories predicting a gold bubble in 2011 indicates that enough skepticism exists to keep gold prices honest.
As with any investment, there is no way of knowing what 2012 will hold for gold. But fears of a bubble should not deter you from buying gold in the new year.