Is Gold Just Another Internet Stock?

Gold is obviously a hot topic of conversation right now because it seems like everyone is flocking to get their hands on it. Looking back at the historical price of gold in the chart below its amazing to see the huge increase in the price of gold since 2009, and if you remember back to the internet bubble this kind of movement seems eerily familiar.

From 1995 to 2000 we saw how the price of some major internet companies were extremely inflated due to high demand, and in mid 2000 you’ll remember the bottom falling out as the true value of companies such as Yahoo, AOL, Pets.com and others came to light.

What we’re seeing now with gold is similar to the boom cycle that took place during the dotcom bubble and you can always count on it happening when there is an inflation scare and the markets aren’t performing. Referring to the chart below you’ll see that a similar pattern took place in the early 80’s. Think back to that time and you’ll remember inflation was on the rise and markets were struggling, so naturally the demand for gold shot through the roof.

During this current cycle we are seeing such a huge increase because there are far more people that are so heavily invested in the market. In the early 80s more people relied on safe, predictable vehicles rather than mutual funds and 401(k)s like they do today. Because of that high participation rate there are more individuals that want out of the market and into what they are told is a safe bet…namely gold.

 

Now you can turn on the TV or surf to an internet site and you’re likely to see sites like bullionvault and certified gold exchange.  These sites can help but nothing beats first hand experience.

As we have seen the price of gold go from around 300 dollars per ounce up to around 1600 per ounce in just 10 years, one thing you need to ask yourself is whether or not you think we are seeing the true value of gold represented. Or could this be just another boom and bust cycle based on popularity and supply and demand.

Stay tuned for our podcast discussing some of the same topics of this post.

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Nick D.

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