Why For All Its Hype, Gold Has Yet To Soar

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For a while now, the price of an oz. of gold has been oscillating in the 900-1000 range, which is reasonably high by historical measures, but not all that impressive considering the constant hype and fears over both Armageddon and rampant inflation. Every time it looks set to really break out, it gets slapped backed down again.

Despite the ho-hum action, WSJ’s Brett Arends warns of a “gold bubble”

Boston is the home of many of the biggest mutual fund companies in America — including Fidelity, Putnam, MFS and Wellington — but one of the busiest places around the financial district right now is J.J. Teaparty, a well-known shop dealing in bullion and rare coins. All day, a steady stream of customers stop in to buy gold and silver bars and coins. A number of local mutual fund managers — “stocks for the long run” notwithstanding — have been seen sneaking off during their lunch hours to do the same.

Next time we’re in Boston we’ll have to check that place out (does anyone know what the equivalent place in NYC is?). And indeed there is TONS of enthusiasm for the metal. Its devotees are up their with Ron Paul fans in terms of their zealousness and presence on the internet.

But there may be a few things going on preventing it from really shooting to the moon. For one thing, a lot of the hardcore gold bugs have been long-time gold bugs. They’ve been accumulating or owning forever, so its core base of believers aren’t new converts with fresh money. For another thing, for everyone walking in the front door of J.J. Teaparty to buy some gold coins, there are probably as many people impishly walking in the backdoor (metaphorically), selling their family jewels and valuables to raise much-needed cash.

See, while there are some people with cash who wish to diversify into something hard and real, there are more people these days who are cash poor, who are selling off their valuables. See: All the Cash4Gold ads on TV, all catering to the people who need to raise cash now and don’t have the luxury of speculating on the collapse of the dollar.

Until those people finally don’t have to worry anymore, there will be plenty of supply for the customers at JJ Teaparty, though by then we’d expect the number of worried customers to dwindle as well.

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