The gold price soared nearly 30% last year - punctuating a spectacular decade-long run that has seen the gold price quintuple! So has gold finally reach a "bubble phase?" Is the great gold bull market on its last legs? In a word, No! If gold is in a bubble, then it's one heck of a bubble. Not even the 2008, economy-wrecking market crash could pop it. Gold is not in a bubble; it's in a big bull market, plain and simple.
As stories about quantitative easing and other forms of overt currency debasement crossed the newswires last year, investors became increasingly concerned about the value of the paper they call "wealth." Increasingly, these concerned investors have been shifting some of their wealth from paper to gold...and other hard assets.
Plus, it's easier than ever to "own" gold (so to speak) via the rise of exchange-traded funds (ETFs) like SPDR Gold Trust (NYSE:GLD). With a click of your mouse, you can buy into the new gold rush - although in many respects it's better to buy real gold and take delivery, a point that I've made over and over.
At the same time, the world's gold buyers are chasing declining mine output. That is, despite the rising price of gold, the world is likely past the point of Peak Gold output. All the output from new mines isn't replacing the decline in output from older mines.
But demand is the main story in the gold market...demand for real money, not the paper kind. The monetary universe is changing in a fundamental way, with the price of gold serving as the barometer, thermometer and inclinometer. The cozy old economic order - post World War II, with the US dollar as the world's reserve currency - is passing away, and things won't ever go back to the long, lost "good old days."
I've had endless discussions with skeptics about "why gold prices are rising." Of course, the skeptics can deny, up and down, the meaning of rising gold prices. But at the end of the day, investors and savers around the globe are becoming increasingly fearful of holding paper currencies.
I won't even go into the monetary problems that national governments across the world are facing with fiat currencies. Just accept the fact that mankind's monetary default position is gold, and that's been the case for 5,000 years or more. Don't fight history.
Here at Agora Financial, we've been recommending that readers buy gold since the late 1990s, when it was selling for under $300 per ounce. We still like it at $1,375 an ounce.
When it comes to gold, there's one key idea to take into 2011: Gold is money. And gold makes better money than the government-issued kind. The big risk of owning currency and bonds is that any Tom, Dick & Harry - OK, the politicians and bankers - can create as much of it as they want. This year and next, your biggest risk is in not understanding that concept.
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