Why gold is definitely not a bubble

Many market participants and commentators are obviously having a hard time distinguishing between a bull market and a bubble. More and more articles are referring to the imminent burst of the "gold bubble" and to an alleged "crowded trade". But are the authors of these articles crying wolf?

The facts quickly put the fear-mongering into perspective. Currently some 0.8% of all global financial assets are invested in gold, gold shares, and ETFs. In 1932 the allocation was 20%, and in the last bull market at the beginning of the 1980s it was 26%. If a total of 2% were allocated to gold, the additional demand would amount to about 85,000 tonnes - or the total global mining output of almost 34 years. Granted, this is only a numeric model, but it illustrates how unfounded the myth of a gold bubble is. According to an old saying, one tends to see the bubbles wherever one is not invested.

The capitalisation of the equity market makes a similar point. Currently the Gold Bugs index is valued at close to USD 200bn. The index contains the 16 largest unhedged gold and silver producers. So it is definitely representative for the industry. In comparison with the S&P 500, the market capitalisation of the most important gold and silver producers is minute. As of 20
May it accounted for 1.9% of total market capitalisation. Even the capitalisation of Exxon Mobile alone is 50% higher than all 16 shares of the Gold Bugs index combined.

David Fuller's view This is certainly one of the very best reports on gold that I have seen over the last decade, and there have been many. As the quantity of research reports increases there is eventually a diminution of quality. For gold, too many consist of cheerleading and competing telephone number target prices. Inevitably, there are also the anti-gold comments.

My suggestion is that if you read just one report on gold, make it this one. I know that Ronni Stöferle has been working on it for months, and it shows in the breath of coverage and quality of analysis. Price targets are always guesses, but Ronni Stöferle's seem realistic to me. More importantly, the facts and figures necessary to conduct one's own analysis are all in this report. It is also a good read, containing some memorable quotes. (See also Ronni Stöferle's report on shale gas.)