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Gold bugs argue that Gold is far from being a
Bubble. Especially not when you look at the following comparison, which plots
Gold's rise versus the Nasdaq's rise in the 1990?s.
 
Chart: Marketwatch
The Bear Camp (including Nouriel Roubini for example),
argue that Gold is (or was) a hyperbolic bubble that is about to (or already
has?) burst:
Chart: Forbes
I like comparisons
because - although history doesn't repeat exactly - I think it rhymes, and
when I look at both charts seperately, I think both
are very nice.
However, what if the
Bulls are comparing the wrong asset to the Nasdaq
Bubble? What if they should rather look at Silver prices?
Back in April, I felt
silver was a Bubble, as price was going VERTICAL, which (as all good things)
never lasts forever. The parabola burst in April, and usually, it takes a
LONG time before the next move up will start (if it ever will).
Chart courtesy Prorealtime.com
Now how is that related
to the Nasdaq Bubble?
Let's first look at how
most (if not ALL) bubbles evolve.
·
First, the Smart money comes in. They buy it because
it's undervalued, and they see a lot of potential. The markets are not aware of this.
·
Second comes the insitutional money. The institutional investors are now
also aware that the asset has a lot of potential. After the nice run up,
price corrects. Everybody says: this is the end of the bull market, but
actually it's a bear trap.
·
When price resumes its uptrend, then comes the
public: "look at what this asset has done over the last couple of years,
it can definitely go higher". It starts with enthusiasm, then comes greed and eventually, we get a "New
Paradigm": Look at fundamentals, this is a 10 bagger from this point
(forgetting that it already rose 10-fold). Then the markets drop. The bulls
say that it's just a temporary correction after the huge run up over the last
couple of years. Then the markets rise again. The bulls will say: You see, the bull market has resumed. This is the Bull Trap. When
suddenly price falls below the previous low, the chartists get scared, and stoplosses are being hit. More selling follows. Now
everybody panics. Then they capitulate: "I've had enough of this. I'm
sick of it, I'm out". Usually, price drops too much, too fast. Eventually, price returns back to the mean.
We can clearly see this
pattern in the Nasdaq "Bubble" of the
1990?s:
Chart courtesy Prorealtime.com
In fact, the Nasdaq is not the only "Bubble" of recent times
that has burst. Think about the Chinese stock markets for example, hereby
represented by FXI (iShares China 25 ETF). Do you
see how similar FXI behaved to the NASDAQ (even AFTER the bubble had burst)?
Chart courtesy Prorealtime.com
Now let's have a look at
the "Silver Bubble". It's following nearly EXACTLY the "Bubble
Pattern" discussed above:
Chart courtesy Prorealtime.com
In fact, when we compare
Silver to the Nasdaq, we get a much better
comparison than when we compare Gold to the Nasdaq
Bubble:
Chart courtesy Prorealtime.com
We might now get the
"Bull Trap", which means Silver might rise back towards $37-$39.
This would also be the target of the red channel in the following chart:
Chart courtesy stockcharts.com
When price hits that
level, and then turns down, the last phase of this Bubble can start:
Capitulation.
There is one sector which
I believe is at or very close to forming a "post-Bubble" bottom. To
find out which sector that is, please visit www.profitimes.com and feel free to
subscribe to our services!
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