Financial Times/Tim Hartford/1-26-2023

“Is gold a frivolous investment or a necessity of the age? Gold produces no stream of income. It has some industrial and ornamental uses, but it is chiefly valued because people expect that they will be able to find someone to take it off their hands, quite likely at a profit. That is almost a textbook definition of a bubble, but if gold is in a bubble it has been in a bubble for several thousand years.”

USAGOLD note 1: Human frailty and financial bubbles go hand in hand. Even Charles Mackay, who wrote the still widely read Extraordinary Popular Delusions and the Madness of Crowds, was drawn into the British railway stocks mania of the 1830s and 1840s, saying that the bubbles’ critics had “somewhat exaggerated the danger.” Shortly thereafter, railroad shares plummeted from their peak by two-thirds.

USAGOLD note 2: Hartford offers a fascinating look at bubbles past and present and has a somewhat forgiving attitude about the people who get caught up in them. He says Mackay was wrong when he said that you don’t need hindsight to see a bubble, that they are obvious if you keep your head about you. We come down on Mackay’s side.

USAGOLD note 3: As for gold being in a several thousand-year bubble, looking around at what cheap money has wrought, we think it still has a ways to go.