Gold: from $775 to $1,200 as bubble debate rages

Gold jumps from $775 to $1,200 and no one nails the top

In autumn 2008, an ounce of gold traded at $775 and the question in the air was why it hadn't reached the $2,000 many had promised. Those who bought on someone else's advice got burned. Five months later, that same ounce was above $1,200 and anyone who had sold in the panic was kicking themselves. The longest-running tracking of the precious metal left an uncomfortable lesson: the consensus was wrong, but in both directions.

The trigger for the first complaint was a contrarian buy. One investor admitted to having piled into gold on someone else's instructions and watching the metal fall as oil plunged from nearly $150 a barrel to around $90. Not stocks, not housing, not gold. The irony went both ways: those predicting doomsday and those promising 150% gains shared the same problem—no one knew when either would arrive.

The 2008 crash almost no one wanted to read

The starting point wasn't optimistic. Gold began the discussion below $800 an ounce, a level many thought impossible after the March 2008 peak. On the table was a debate that time hasn't settled: some argued gold was as bubble-prone as bricks and mortar—at least a house can be lived in—while others replied that the metal wasn't just another commodity but insurance against banking collapse. The second view was repeated like a mantra: we only buy gold as a haven from the rot in the system.

The parallel with housing became the most repeated argument. If in Madrid new-builds were discounted 17% in two years in certain cases—developments that went from €600,000 to €450,000 without finding a buyer—why would gold be immune to supply and demand? The most cited answer was the usual one: because its supply doesn't grow at the pace of paper money. The calculation, according to an analysis in circulation, put gold from the 1980 crisis at just $131 equivalent—in other words, a giveaway.

The assault on $1,000

By mid-2009 the mood changed. Gold approached $984 and then $986.80. Interventions multiplied: people talked about the last chance to buy below $1,000. In September the barrier fell and volume exploded. The dominant argument was simple: once the psychological resistance at $1,000 was broken, the rise was free.

Forecasts peine. A widely cited calculation set a target of $1,318 after the break of $1,000, a target of £790 and €900 depending on the reference currency. By late 2009, figures were dancing between $1,139 and $1,145. And still, the pattern repeated: those waiting for a correction to enter saw the train pull away. It's very likely we'll never go below $1,000 again, warned one of the most lucid analyses.

Bubble or safe haven? The disagreement that won't close

The core of the conflict was never the price, but the nature of the metal. Some argue gold is money, and that fiat money is nothing more than a promise to pay issued by a private entity called a central bank. Under that logic, gold isn't quoted: it's hoarded. The opposite view, equally solid, points out that everything that goes up comes down, and that whoever buys at highs to resell later pays the price.

The year's figures fed both sides. The dollar depreciated around 20% since December 2008, and that slump catapulted everything measured in greenbacks: gold, US exporters, emerging markets. Commodity funds gained more than 70% over the year. The layman's question then became rhetorical: if gold is going to soar, why don't sellers keep it and become millionaires? The most cited answer was the commission, which on physical gold reaches 20% and even 30% in tense moments.

Physical gold, paper gold: buying what doesn't exist

Here the tracking became meticulous. Buying at the international price isn't enough: you have to add delivery, storage, transport, insurance, tariffs and taxes. The COMEX price is not the price of the coin in the shop. Several interventions insisted on the same point: if you want to take advantage of the paper price, you can only buy futures or bank gold accounts, assuming the risk of the entity going bust.

And then there was the problem of scarcity. One participant recounted that on visits to several shops they no longer sold coins, and in one they had directly asked him to be the seller. Another pointed to Dubai as a thermometer: there they still sold, but the interesting lots didn't appear. The buyback business, the so-called "compro oro", was starting to notice that those who have to sell their gold do so only once. Soon they'll start closing for lack of sellers.

The manipulation thesis: the Fed, COMEX and GATA

Much of the material pivoted on suspicion of manipulation. A Federal Reserve response was cited confirming swap agreements with foreign banks under a transparency exemption. For the most critical, the whole setup summed up in a refusal. Gold is very cheap because the price is manipulated, went a repeated thesis: when the manipulators can't keep up the operations, the metal will soar.

COMEX was another front. An analysis flagged a technical detail: record volumes with open interest barely moved. The interpretation was that banks were throwing paper and more paper to push prices down, and that big players were taking the other side. On the official side, the CFTC announced reports with four categories of traders, an attempt to shed light on swap dealer and manager positions. Rules don't give explanations, said another, they happen and leave a stain.

China, central banks and the gold that's kept

While the price rose, the gold map changed. China produced 172.9 tonnes in the first seven months of the year, up 13.4% year-on-year, and in 2008 had overtaken South Africa as the world's top producer. Its miners looked abroad, with projects in North Korea. And a Chinese official let slip that the Dubai crisis could be an opportunity to convert reserves into gold or oil.

The circular argument of one of the most-read analyses was that China was in a race against time: it supported the dollar in the medium term to be able to relocate its trillion in paper before its value became ridiculous, while pressuring Canada and Australia, rich in resources. Chinese demand could exceed 450 tonnes that year versus 395.6 the previous year, and some calculated that if the Asian giant raised its holdings, gold could reach $2,600. The figure remained a hypothesis, not a prophecy.

Queues at the Mint and the "compro oro" fever

A testimony from Mexico City gave the measure of the phenomenon. At the only accessible Mint shop in the city, an outsider initially waited behind two people. Four weeks later the queue was six turns. The last visit, in mid-November, required waiting for twenty-five. It wasn't a payday. It was simply people buying metal, and relative scarcity was starting to show in buyback prices too.

Meanwhile, World Gold Council figures put the whole thing in scale. Throughout human history, an estimated 163,000 tonnes of gold have been mined: 83,600 in jewellery, 27,300 in bars and coins, 28,700 in official reserves. Recycling jewellery into investment gold was working at full tilt, though it had a limit. Starting new mines took too long.

Technical vs fundamental: the war of methods

In the final stretches of the tracking, the disagreement was no longer about the price, but about how to predict it. Fundamental analysis supporters argued that last week everything had fallen, and that fundamentals don't change 20% in seven days. Technical trinc replied that choosing when is as important or more than choosing what. The only synthesis possible was the usual one: nothing works on its own, and sometimes not even combining everything.

The question drifted to the stock market. There was discussion about whether gold rises when stocks fall or falls with them. The same day it falls, in the medium term it rises, summed up a rule dictated by experience itself: the best days to buy gold long-term are days of simultaneous falls with stocks. Behind that pattern were margin calls: those holding gold instead of cash sell to cover positions.

How the discussion ended—or how it didn't

The closure came for reasons unrelated to the market: the volume of messages exceeded what the platform could handle. The moderator closed the tracking with a request to open another. No definitive correction, no crash, no whip multiplying the price fivefold, as had peine in 1979. Gold ended above $1,100 an ounce, far from the $2,000 promised and also far from the $775 starting point.

The uncomfortable question remains, the same one that peine the matter almost two years ago: was it a bubble, or simply an asset no one knew when to buy? Those carrying losses since 2008 saw their late thesis confirmed. Those who bought at $800 and held saw a 55% return without doing anything. And in between, a legion of people staring at candlestick charts they didn't understand, waiting for a top no one knows where it is.

---

Note: this article summarises a public tracking of the gold market. It does not constitute investment advice.