As many listeners know, I was a Gold critic for some time. But as I continue to see the pumping of bullion on the news media, TV personalities and even from certain politicians, I'm seeing the Gold bubble beginning!
For all who are unaware, America loves a good bubble; the dot coms, real estate, etc. Gold, at this point, seems to be one of those financial instruments that investors (laymen and pro) seemed to be getting into for many different factors.
One factor, inflation! The U.S. government is continuing its orgy of deficit spending, which is debasing the American currency. Typically the price of Gold rises when a currency is devalued and we're seeing (and have seen since the concept of investing) investors use liquid from other positions to purchase Gold to hedge against this inflation. This play provides the investor with cash reserves via metal that gains with inflation by default.
Another factor, accumulation! Since Gold's rise since 2000, many firms, businesses and individuals have started up to capitalize on these unprecedented gains. Everything from Gold bar peddlers to scrap Gold buyers fill the advertising space on the news networks and other media; not to mention that financial institutions are now accepting Gold as collateral. This means that a mainstream industry has been birthed based around bullion and is obviously successful enough to continuing paying millions to advertise and accumulate the metal. So what does that tell me, it tells me that this is the beginning of potential Gold scarcity because of accumulation. Accumulation of this metal can cause a huge spike in the value of gold based on the laws of supply and demand; and this is a key factor for fueling the coming Gold bubble.
The last, but not least, factor; over speculation. At some point (I believe we're entering that phase now), everybody from investors to the regular joe are going to believe the hype and accumulate Gold no matter what the market price is. Over speculators are going to be blinded by gains and they will fail to realize the limitations of this instrument (just as the did with real estate). This will engulf the latter portion of the Gold bubble right before it bursts, which I feel will take place in about 2-3 years from now.
Taking these factors into account, I feel very bullish on Gold for the time period mentioned previous. I believe (in my opinion) that bullion could go as high as $3000-$4000 an ounce before is pops, so take advantage by setting aside a minimum of 10-15% of your portfolio and entertain plays in the metals market; especially Gold!