gold - when it goes up it hurts no-one

There is plenty of talk about an exponential move up in gold.

I'm a believer and have had that view for many years.

Of course holding on will be the big challenge because the best and biggest moves will be happening when "everyone is talking about (and investing in) gold" and so most of those of us that own it now will struggle to feel safe sitting with the crowd. We'll probably be buying stocks (or god forbit even those worthless bonds) because when gold is really surging those other things will be rapidly turning into relative bargains.

One of the most difficult challenges with long term secular bull markets is that the really undervalued things (like gold over the past 10 years or stocks in the early 80s) then become really overvalued in time. Holding on for all of that is the challenge - being able to find a good exit point is an even bigger challenge.

The thing that few people understand about gold is that when it becomes speculative it becomes REALLY speculative. This is a metal that has caused whole new regions of the world to develop and then fall away, history tells us clearly how the power of a speculative gold market has shaped the world.

The key to the speculative phase is that unlike virtually everything else, Gold is something that hurts few when it rises in price (with a possible exception being a realtively minor influence on the jewelery trade).

Virtually eveything else you can think of will cause major damage to something or someone when it rises too far or too fast. Wheat bull markets create stavation for the poor, the A$ bull causes harm to our miners or manufacturing industries, oil bulls cause petrol and other costs to go up, copper forces wire manufacturers move to alumium as their business become loss making. And it goes on...

These negative influences of rising prices result in most things finding some sort of price ceiling eventually because one way or another consumers get hurt by the rising prices and end up buying less. Geniune speculative buying usually makes up only a small part of most markets.

Gold hardly hardly harms anyone (remember only 2% of the gold market comes from annual production and consumption when I say that). What that means is that when gold rallies and gets into a speculative frenzy there is a minimal price ceiling due to underlying consumption declines. That makes it possible for a speculative gold bull market to get just as ridiculous as any bull market one can imagine (think of pets.com worth US$500m as a case in point when no-one would ever buy a dog without first seeing it).

So I accept gold will get really really overvalued.

I also accept I'll probably miss the top by a mile, but when other things are so cheap compared to gold it won't matter if gold keeps running becuase in the end there will be more money to be made by switching your gold for those productive things that it won't matter if gold keeps going up in a short term mania.

Real wealth can be maintained by holding gold for the very long run.

Real wealth can be created by trading into and out of gold over the medium to long term.

Real wealth can't be created by holding onto gold for the very long run.