Commodities sell-off: The gold bubble is deflating

Posted August 18, 2008

Speculative commodities like oil and gold are selling off at alarming speed as funds liquidate losing positions and buyers retreat to wait for a bottom. There are some tell-tale signs that the bubble has popped. Amberger tells you what to look out for…

by J. Christoph Amberger

Baltimore — (TFN): “Pray for a good Indian harvest. Like the price of tea in China, an abundant crop on the subcontinent has a lot to do with the overall fate of the yellow metal,” wrote Kitco.com’s Jon Nadler on August 12, as gold plunged to $802 per ounce, down a whopping $232 in less than five months.

When gold bugs are imploring many-armed deities for rain to keep memsahibs in 24-carat bangles and bracelets, its time to realize that you have a problem.

Like it or not, speculative commodities are deflating as funds sell at-risk holdings for easier pickings. Oil, copper, gold and other speculative assets that promised unlimited upside are now caught in an accelerating downward spiral.

In all likelihood, that descent will occur in leaps and bounds, which each plateau suggesting an imminent recovery. We’ve seen it happen before, with Internet stocks and with U.S. real estate.

And we’re seeing it again.

The next alarm sign will be excessive use of the undead word “accumulate”. As in “accumulate Pets.com shares on weakness.”

Not even the good lord Brahma will be able to rekindle irrational exuberance then.
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