Gold drops – Is the bubble bursting?

December 15th, 2011

Gold prices continue to fall, dropping nearly 5 percent in the last few days. Mark Williams teaches finance at BU’s School of Management. He is a former Federal Reserve Bank examiner and the author of Uncontrolled Risk: The Lessons of Lehman Brothers. He offers the following comments on the fall of gold prices and whether the gold bubble is bursting:

“The gold bubble is bursting. Global economic uncertainty has not abated yet gold prices continue to plummet. Market fundamentals have changed as fear capital has opted for U.S. dollars and Treasuries over gold.

“Since September, gold has dropped by over $400 per ounce. In the last month, prices are down by 12 percent. This represents the largest fall since the gold bubble bust in 1980 when it dropped by 60 percent in a single year. Investors then had to wait 20 years for profits to return. Using that as a benchmark, gold now could drop as low as $700 to $800.

“Over the last decade, investors collected double-digit returns but ignored the fact that gold could just as easily generated double digit losses. Recent price drops are an investor wake-up call that gold is no longer a safe haven investment but a risky speculative bet.”

Contact Williams at 617-358-2789; williams@bu.edu

Related post:

Gold bubble will not last

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