I haven’t visited this thought for some time so I wanted to come back to it before year’s end.
On the October 28, 2009, episode of Marketplace, a radio program about business distributed by American Public Media, the political pundit David Frum made the assertion that the precious metal gold was a bubble.
In fact, you can read his words by clicking here.
When he appeared on Marketplace, the price for an ounce of the yellow metal was $1029.90 an ounce.
In the three years since Mr. Frum’s assertion, I have posted updates (under my category of “veridiction”, my made up name for the act of verifying predictions) to see how the former speechwriter for George W. Bush has fared with his “bubble” warning.
My first post on the subject came half a year after Mr. Frum’s analysis of gold was heard over the airwaves. In those six months, the price had risen 13.7% to $1171.30 an ounce.
Ten months after Mr. Frum’s warning, I posted an update. Gold had then hit a mark of $1236 an ounce, an increase of 20%.
A shade after the two-year anniversary of Mr. Frum’s warning about speculating on gold, I again issued an update in blog form. At that point, the price of gold was hoverning in the neighborhood of $1730 an ounce. Anyone who had bought gold the day Mr. Frum warned against just such a foolish act and then had sold said gold nearly two years after Mr. Frum’s warning would have made a staggering 67.9% return on that investment.
I was content to end this particular update with a look at where the price of gold was today, three years and a month (give or take) after Mr. Frum’s original prognostication. However, something curious happened. While doing research for this post, I saw that Mr. Frum had made an updated prediction concerning gold. Nearly a year ago, on December 29, 2011, he wrote that he indeed was correct that gold was a bubble because it had popped. As he wrote…
The price of gold dropped $31 an ounce yesterday. Gold has dropped $400 since the summer…Further declines look likely.
When a bubble pops, prices plummet like…like…like a gold brick, I guess. Think tulips circa 1620, Beanie Babies circa 2004, and the United States housing market circa 2008. When those bubbles popped, the value of the item in question dropped faster than Felix Baumgartner.
As Mr. Frum was making his popping sounds, the price of gold was at $1571 an ounce.
Where is gold now?
One year after gold “popped”, the price, as of December 4, 2012, settled at $1712.70 an ounce.
Gold has increased 9% since its bubble “burst”.
It has also increased its value 66.44% (there’s your number for the day) since Mr. Frum first made his assertion in 2009 that gold was a bubble.
Allow me to end this post with the words I have completed my last two posts on this subject because I feel they are still valid…
As I have written before, my main point in highlighting Frum’s “gold-is-a-bubble” assertion is not to say he was wrong because at some point the value of gold will fall. My point has always been that anyone can say an asset is a bubble because at some point the value of said asset will fall.
The trick in calling a bubble is in the timing.
Had Mr. Frum predicted that gold was a bubble and it would pop in two years (or one or three or four, etc.), then we, as listeners, would have something to hang our hats on and Mr. Frum would have a real assertion to stand on.
But, instead, we, as listeners, only receive a bland dose of pabulum signifying nothing. Again, any listener who heard Mr. Frum’s advice and sold their stake in gold would be out a gain of
thirtynearly seventy percent.