It is always possible to burst an investment bubble. If most or all of the money invested in a commodity is borrowed—in other words—if everybody is a speculator then you should expect both a bubble and a bubble burst. When there are too many people living on a borrowed dime then there is too much volatility in the market. A slight dip in the perceived value of the commodity will cause some of the speculators to lose their shirts. The people who loaned that money will ask for their borrowed money back. Since the price of the commodity dropped, even if the speculators sell everything they won’t be able to pay their bills. So the speculator suffers a double loss. His gold, or stocks or real estate price dropped and he stills owes the money.
Even if you didn’t borrow money to invest in this bubble you can still lose. When the bottom falls out no one asks who invested and how they invested. Rather everyone loses.
So, should you invest in gold? One school of thought says: No. There are too many people who don’t know what they are doing investing in gold right now. This wisdom further states not that you should sell all your gold investments but rather that, if you have already invested in gold, you should sell enough to realize a profit. If you have been investing in gold for 10 years or so you have probably made some money. So sell some of your stock or gold, contingent on what your tax advisers and lawyers have to say about it of course. Buy low. Sell high. Gold is high now so if you have some the conventional wisdom says to sell.
And now a word from our sponsor. Bad advice. You know the kind I myself am taking. Firstly, I am a buy and hold investor in paper gold. Some pundits say this is wrong on two levels. Buy and hold is a proven loser and paper gold can magically be made worthless or even confiscated by the Marxists, like Obama, who currently run the federal government.
What can I say? Buy and hold has lost me thousands on some stocks. It has also made me thousands on other stocks. So on that level buy and hold is a wash. The wild card is I tend to choose stocks that have dividends. So even the stocks that have lost value have still made me money in dividends. If you are an average stock picker like me, first screen your picks for high dividend yields so you can still make money in a losing market.
They say you should never say never but I will say it anyway. As long as Obama, Bernanke, and Geithner are in charge of the money supply, the conspiracy to destroy the US dollar and give the United States Weimar Republic style inflation is on. I have heard these three referred to as the three Stooges. As long as Larry, Moe and Curly are in charge of our economy, gold can NEVER go down. So I continue to invest in paper gold. Obama consistently spends trillions of dollars and pretends to save billions of dollars. Massive inflation is inevitable on that basis alone. In addition, Bernanke is creating money out of thin air in a process called Quantitative Easing. Bernanke is printing more dollars so the dollars you now have are worth less. Where is Waldo, I mean Geithner in all this? Paying off his Wall Street banker and investment buddies with taxpayer dollars I imagine.
China and Russia no longer trust our money and the world is looking at something besides the dollar as the world’s reserve currency.
I am not at all sure how people are going to spend those obscure gold coins they are buying as a hedge against inflation but I am going to bet that there will still be enough infrastructure left for me to sell my paper gold when I need to.
When Obama accomplishes his Manchurian Candidate task of making sure that when the average American looks up from the gutter he can almost see the economy of Mexico, I hope to have enough inflated dollars to buy my house out right and to buy enough food to eat. What more could a man ask for?