Photo: Anthony Easton on Flickr
Wells Fargo analysts think the gold market is so out of control that they dropped the “B” word in a recent report.The report professed its aim to “ring the warning bells” for would-be investors.
Its reasoning? True, exiting the gold market right now might be premature. Given the capacity of the gold market to drop sharply, however, you’re better safe than sorry.
Erik Davidson, deputy CIO for Wells Fargo Private Bank, wrote:
“As with all bubbles, we know that we run the risk that our view may turn out to be wrong (‘early’ would be our preferred euphemism) in the short run; however, we believe that we will be proven right in the long run…
With very little warning, the bottom can drop out on gold prices very quickly. For example, during six short months in 2008, gold lost more than 30 per cent of its value. In the 1980s, in a little more than two years, the price of gold dropped approximately 65 per cent. When fear subsides, inflation doesn’t skyrocket, and everything begins to return to ‘normal,’ demand for gold can fade away quickly.”
Wells Fargo analysts also reasoned that equities are a safer bet in the long-term because equities and commodities benefit from inflation. Check out this graph (from CBS Moneywatch) to see the evidence:
Photo: CBS Moneywatch