On the October 28, 2009 episode of the public radio program Marketplace, David Frum (former speechwriter for President George W. Bush, former fellow of the American Enterprise Institute, current blogger for FrumForum) made the assertion that gold was a bubble. A more in-depth explanation by Frum for this assertion can found in his October 17, 2009 post on the National Post.
On October 28, 2009, the price of gold stood at $1029.90 an ounce.
On April 28, 2010, six months after Frum made his annoucement that gold was a bubble, the price stood at $1171.30 an ounce, an increase of 13.7%.
Since I have posted this blog piece under the category of “Veridiction”, which is my concept of verifying predictions, you might be wondering if this piece is to say whether or not Frum is correct in stating that gold is a bubble.
He’s right becaue, six months after his prediction, the price of gold continues to rise.
However, he’s wrong because, six months after his prediction, the price of gold continues to rise.
Actually, this blog piece isn’t so much to say, like my other Veridiction pieces about sportswriters or the Congressional Budget Office, whether Frum was right or wrong in his prediction, but it is to pop the bubble of those who would make predicitions about what is or is not a bubble.
Frum is correct in stating that gold is a bubble, because every investment is a bubble. Sooner or later, the value of an asset goes down. When the price of gold dips below $1000 an ounce, Frum can proudly state that he called it. However that dip in value may take six more weeks, six more months, six more decades, or when the sun finally exhausts its fuel and becomes a red giant. Whenever the dip happens, Frum can say that he called it before anyone else did.
Anyone can say an asset (whether it be gold, the housing market, Beanie Babies, or baseball cards) is a bubble because sooner or later, the value will drop.
The trick in calling a bubble is not to say that something is a bubble (because all investments are bubbles), the real trick (and the only thing worthy to hang your swami hat on) is calling when the bubble pops right before it pops.
Now that would be a blog post or a guest commentator stint on Marketplace to watch for.