Gold continues to edge upwards and it's expected to hit $1400 before year's end, all being driven by the weakness of the US economy and greenback.
Lately, gold has slipped slightly as the US dollar started recovering. That's just for now, things remain volatile. It will go back up again because the US economy remains in trouble.
But as Mark Williams from the Financial Times reminds us, all bubbles have to burst and gold is no exception.
Williams writes: "Despite their human origins, most bubbles are not easily spotted until it is too late. The dotcom bubble took four years to burst; the real estate bubble six. The last speculative gold bubble, in 1980, took four years to implode, while this latest reincarnation is seven years in the making. This bubble will likely be pricked only when economic outlooks improve and unemployment figures in countries like the US drop below 8 per cent. This might come in 2011, but it could take much longer. Unlike previous asset bubbles gold is a tiny fraction of total global investment capital. When the bubble pops, it will represent less than 2 per cent of the world's total. Those most hurt will be the investors who are the last ones out. These tend to be the smaller investors – just as in the real estate bubble, those who can least afford to lose. However, in the aftermath of the credit crunch we have entered into an era in which global systemic risk is high and unpredictable. Even small events, seemingly unrelated, can trigger larger financial events."
If there is an upside, it's this: the pricking of the gold bubble means that the world economy is on the mend. And if a few greedy investors get burned along the way, it's a price worth paying.
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