The Gold Bubble

A listener asks if gold is a good investment. Dave says it’s a great time to sell it, but getting excited about buying it is not a good idea.

QUESTION: A listener asks if gold is a good investment. Dave says it’s a great time to sell it, but getting excited about buying it is not a good idea.

ANSWER: Gold is in a bubble, and you don’t know when it’s going to burst. A bubble is when an investment is no longer based on numbers, but based on greed or fear. In a real estate bubble, people go bananas based on an irrational exuberance. Something is happening in that market, so the price of real estate goes through the roof irrationally. An example was Las Vegas.

Las Vegas was the fastest growing city in North America. Everyone was going nuts over Vegas and the Strip. It is a legitimate city with a legitimate economy that was growing. It was a gold-rush mentality to buy property there. As a result, there was an irrational level of excitement that drove the price up.

Now, should you take advantage of that? The answer is no, because you don’t know when the bubble is going to burst. It’s musical chairs; when the music stops, someone is not going to have a seat. The bubble will burst on gold because it’s irrational. The observation that gold is the standard on which the world wealth is based is not true. It hasn’t been the standard since the Roman Empire. Gold has no intrinsic value.

Be the tortoise when you are investing. Don’t get your heart rate up. Go slow and steady and build your wealth on a strong foundation. As Warren Buffett says, be greedy when others are cautious and cautious when others are greedy.

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