On the loss of reason in a speculative mania

Many analysts are still out there arguing that gold is in a bubble, and that a price crash is inevitable – it’s just a matter of time before the price goes back below $1000/oz.  Take note of the following extract from Joseph Calandro, Jr.’s book ‘Applied Value Investing’ about the “fundamental substitutes” for valuation that emerged during the mania phase of the Nasdaq bubble in the late 90s.

“Eyeballs is a term that was used to describe the number of times that an internet web site was “hit” or visited by an individual internet user.  In eyeball valuation, each of these hits was assigned a monetary value, the sum of which purported to be the value of the new economy firm.  This technique is analogous to assigning a monetary value to every window-shopper at a traditional brink-and-mortar store, and then using the sum of those values to determine the store’s value.”

Ch 5, ‘Applied Value Investing’, Joseph Calandro, Jr.

If this is the loss of common sense amongst mainstream professional investors during the speculative mania phase of a bubble, gold is still far from being in a bubble.  In fact, now may be an even better time to buy than back in 2001 when gold was $250/oz or R1500/oz.  Today, we can say with much more certainty that the Western world economy is set up for a collapse that will be much more severe than the crash of 2008, and will hence result in trillions of dollars more money printing that will send gold to heights many people would consider impossible today.

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