April 13, 2011 The debate rages over whether gold will continue its bull run or whether its bubble is about to burst. In the past decade, by and large, gold has risen against every currency every year and has outperformed most other asset classes. The barbarous relic has made an exciting comeback.
Assertions of a bubble are flimsy. According to the CPM Gold Yearbook 2010, despite 10 years’ worth of rises, gold only constitutes 0.7 per cent of the world’s financial assets. Indeed, in the very late 1960s, gold comprised 5 per cent, in 2000 it was 0.2 per cent. A bubble cannot exist if something is so sparsely held.
The bull market case suggests a stronger argument because of reasons of continued investment appetite, dollar debasement and relative value. But the thesis is deficient.