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“Cash4Gold” Type Operators: Bullish or Bearish Sign For Gold?

8 October 2010 7 Comments

Gold is clearly in a bull run.  Look at any chart over the last couple years or 10 years or whatever and the run is big.  Most skeptics point to the fact that gold has already run so much, therefore, why commit new money into it?  It’s a valid point and one worth considering, but in my opinion, this is a fundamental move and the fundamentals are firmly in place.

Furthermore, many point to the fact that the “Cash4Gold” type businesses have popped up and are now on late night television as a sign that gold has run its course and is potentially entering bubble territory.

The reality is that this is a sign of peak consumption NOT a sign of peak gold prices.

Why?  Because gold in many cases is the last asset that people have to their name to which they can pawn off in an attempt to salvage an unsustainable lifestyle.

The Cash4Gold places are trying to get people to sell their gold, not buy gold.  You drive around shady parts of town, you see places that have sprung up in an attempt to get people to unload their gold.  You goto a not-so-nice shopping mall, and you might see these places there as well.  Why are these places in these types of neighborhoods?  Because this is where people are struggling, and people who are struggling will sell their assets off in an attempt to get the latest ipod.

When you start seeing places pop up in neighborhoods all over America trying to SELL gold, then it might be a different story, but this is not happening right now.  You have a trend of people unloading assets and trying to hold on to a lifestyle more and people trying to make smart financial decisions and move money into hard assets.

The smart money is moving into hard assets, the dumb money is unloading assets.

Look, gold is going to be volatile.  It always is.  But, the fundamentals are clear and firmly in place.  I watched stupid CNBC this morning and it was shot on location at the St Louis Fed.  One of our wonderful economic central planners was on the set spouting his nonsense and using fancy terms like quantitative easing.  They are going to print more money and will print a lot of it.  As they print money, prices will rise for the people who are struggling and they will be in worse shape.

The other reality here is that these policies will continue to drive gold higher.  If a bubble actually develops, it hasn’t yet, you will see gold go vertical.  It will move $100 in a single day.  People will panic as they think their currency is losing value and will jump into gold even as it goes to insane levels.  This will be a bubble.

We need to get our definitions of a bubble down.  Here is what a bubble looks like… remember in the mid 2000’s during the real estate boom?  People lined up in the middle of the night, in order to enter a raffle.  The raffle winners were given the wonderful opportunity to hand over a check of $10,000 which was a deposit on a condo unit in a crappy part of town that had not even begun to be built.  Yes, that is a bubble.

Do you see that kind of activity in gold right now?  How many people do you know that own gold?  Exactly.  Gold is going higher.  Buy the dips.

7 Comments »

  • Jason said:

    You haven't missed the boat you've just become aware that there is one! Jump in with fiat that you can survive without in the mid term and/or want your children to enjoy the true value of or more in the future. It's not about profit taking it's about presserving your hard work. Best Wish's Jason

  • It's-Me said:

    Who is actually behind all these "cash for gold" places? I'm sure that there are only a few sources where these dealers are sending their wares. They are popping up everywhere here. Seems like every street corner has one or more. I have went to a few of these hoping to purchase some gold/silver at a reduced rate but they will NOT sell…only buy. Where are they sending this stuff….what refinery is buying all this….seems like there is no limit on what they are willing to buy.

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