This year, market-guru George Soros dumped around $800 million of Gold (NYSE:GLD). Now people are wondering if it might be time to jump ship. If Soros is getting out now, what does that say for the future of the gold market?
While it’s true gold (NYSE:GLD) has been bullish for a 12-year run now, and that one should expect the floor to fall out at some point, that’s unlikely to happen before it hits its blow-out phase, when share prices will go through the roof. Until that happens, there is still more money to be made.
In July 1999, gold (NYSE:GLD) hit a 20-year low at $252.80 an ounce, but since then it has steadily recovered, reaching a record high of $1,575.79 an ounce — that’s a 623.23% increase in value over 12 years. If you bought in in 1999, maybe you’re ready to sell as you kick back on your yacht in the south of France and fan yourself with crisp hundreds. Selling too soon at least avoids the risk of selling too late.
For gold (NYSE:GLD) to move into bubble territory, we’ll have to see a period of steadily rising prices, and there isn’t enough evidence that we’ve entered that period. The markets are currently priced for low inflation. But at some point central banks will raise interest rates, then bond markets will collapse, equity markets will fail and everyone will look to gold as a safety net. Central bankers will become more concerned with fighting inflation than warding off depression, and gold prices will skyrocket into a blow-out phase that cannot last.
Here’s where the bubble pops. Gold might be as high as $3,000 an ounce before it takes a hit, but it inevitably will take a hit, just as it did in 1999. There is no predicting how high it will get, and how soon it will fall. It could be next year, or the year after that. And in that time, prices could double. The unpredictability is enough to get many investors to play it safe and get out early, but not as early as Soros did. There’s still money to be made — the time is not yet ripe. When it is, the signs will be there. Then it will be time to sell.
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