Gold is Going to Crash

Asad Dossani
Before I tell you why gold is going to crash, I want to bring your attention to this: Recently, I came across a fantastic interview with legendary investor Jim Rogers. He's a great source of market views and insight across all assets including gold. Check it out.

Now back to gold. Everyone is buying gold. From investors to central banks, the yellow metal is back in fashion. In a recent conversation with a fellow analyst, I was reminded of the myriad reasons to purchase gold.

First, central banks have lost it. Their continued policies of quantitative easing and negative interest rates are going to backfire. At some point, higher inflation will take hold as their currencies get debased. Gold is the best asset to hold in such a scenario.

Second, in addition to debasing their own currencies, central banks continue to accumulate gold. Russia and China have been the big buyers this year. Since the end of the global financial crisis seven years ago, central banks around the world have dramatically increased their gold reserves.

Third, we are entering a new phase of the global crisis. Debt levels continue to increase to record levels. Central banks and government can only delay the inevitable. When the SHTF, you better make sure you've got some gold. Even better if its physical gold you can touch and store away somewhere safe.

It turns out that the above views are widely held. They have been for some time. Upon listening to these reasons, you may be tempted to buy gold. Here's why you shouldn't:

When views like these permeate widely, the result is a lopsided market. This is market where everyone wants to buy. Everyone here includes central banks, institutional investors, and retail investors.

Have you even experienced a market crash? If you've followed markets long enough, I'm sure you have. Think about your favourite market crash. And now think about what happened in the months and years preceding the crash.

Prior to that crash, nearly everyone was bullish. They all said buy. That you'd be crazy to sell. In simple terms, there was a bubble. When everyone is buying, you end up with a bubble. Eventually it bursts and the market crashes.

That's exactly what's going on with gold today. Too many bullish views and too many buyers. The key ingredients for a bubble and subsequent crash are in place. It's just a matter of time.

Unfortunately, predicting the timing of a crash is difficult. The same is true for the timing of any kind of crisis. In case you haven't noticed, people have been predicting currency debasement and hyperinflation for the last seven years. We're still waiting.

The best way to profit from gold is not to wait for a crash or crisis that may never come. Instead, you should identify short-term trends. Then trade on the long or short side as opportunities come up.

That's exactly what I do at Alpha Trader. No waiting around. No praying for crises. No subjective opinions. Just simple easy profits.

A final note: You can now enjoy access to all Daily Profit Hunter and Equitymaster content on our mobile app. It's available for Andriod and iOS, so get access today!

Do you think gold is in a bubble? Let us know in the Club or share your comments here.

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5 Responses to "Gold is Going to Crash"
13 Oct, 2016
The prices of Gold have gone up. Presently around Rs 30k. How do you propose to comment with reference to above article?Like 
02 Jun, 2016
But when money printing is occuring at a faster rate than economic growth, essentially your money is losing value faster than gold. So may be Gold might correct but by that logic currencies, stocks have to correct even moreLike 
Siva G
29 May, 2016
In 1998, Gold was around Rs. 400 per gram. Now it is Rs. 2500/- per gram. It is always told that gold is a hedge for inflation. But look at this dramatic progression of gold's value growing at 10.75% per annum. Please provide your view on this.Like 
Milind Sarode
22 May, 2016
Can the international price trend of gold predicted?Like 
22 May, 2016
The view that "gold is going to be the next big invest' is being promoted by many of them being called Wall Street informer...You are the only one with a contrarian view..Glad to hear your views..Like 
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