David Rosenberg: Forget Gold $1300, It's Going To $3000

Just because we hit that that big round-numbered milestone of $1300/oz this morning, don’t think that we’re at the peak of a gold bubble. That’s at least how David Rosenberg sees it:

It may be overbought on a near-term technical basis, but gold — now on the precipice of breaking above $1,300/oz — is likely to remain in this secular uptrend for quite a while longer. We’re talking years. We’re still talking $3,000/oz. Gold has made this transition this year away from being a strict commodity towards a role befitting a monetary metal that is no government’s liability. Look at what is happening around the world.

The Fed is openly contemplating a round of quantitative easing. So is the Bank of England. The Bank of Japan’s latest unsterilized intervention effort to reverse or at least stem some of the yen’s strength was quantitative easing in a different form. The Swiss National Bank has spent countless of resources to prevent the franc from firming and now some Asian countries, and even Brazil, are thinking about taking similar actions. The ECB already jeopardized the sanctity of its balance sheet during the height of the Eurozone debt crisis this spring.

No country wants a strong currency. All we have seen this year, and the past few years in fact, is a series of rolling bear markets in various currencies (for an example of this, just take a read of the article on page C8 of today’s WSJ — A Return to Beggar Thy neighbour?), which is why gold has managed to hit new highs against a whole host of FX units this year. Just as an equity market strategist will always be focused on breadth, the same can be said in reference to bullion. And make no mistake, this latest leg up in gold has not been speculative at all — real long-term money, from what we are hearing, is coming into the bullion market.

When you look at gold in real items, or normalized by the money supply (U.S. or global), you can see that we have a way to go to get to the old highs nearly three decades ago. When you look at what prior bubbles did across asset classes, you can also see that this bull market in bullion also has a way to go before it even enters a manic stage, let alone bubble territory.

It’s funny because he is both a bond and a gold bull, and some have argued that eventually one will win out, and the other must drop off.

But to Rosenberg, the real tension is between bonds and stocks:

bonds

Photo: Gluskin-Sheff

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