Booms and busts – they never change….

While much has been written about the tulip boom, it amazes me just how little has been learnt from it when you look at the rampaging surge in the price of gold, followed quite closely by recent price hikes in crypto currencies and now rare earth miners.

I guess it just taps into human nature that we all want to suddenly become rich and find a ‘clever investment’ where there is no downside or risk, and which will increase say 10 times or more in value.

I don’t have a problem with that as long as they realize that just as buying a ticket in a lottery or raffle or putting a bet on a racehorse in not an investment, neither is getting caught up in a financial bubble.

Moreover, as soon as it looks as those these ‘investments’ are certain to make money and will continue forever to appreciate, that is precisely when they are likely not to make money.

For 10 years from 1915 to 2005 the price of gold consistently stayed well below $US 500 an oz. Following the global financial crisis there was a surge in the price of gold but nonetheless it consistently trading well below $USD 1500 a oz for the following 15 years.

Then we’ve had a period of explosive price growth first on fears that Donald Trump would become the president of the USA and then on the fact that he actually is.

While I don’t find that surprising, what I find surprising is that some people think this isn’t a bubble.

In the late seventies, gold doubled in price only to backtrack and trade at half that value for the next 30 years. Another blip in the price of gold occurred in 2011 only to fall back again within a few years.

Whiles it’s tempting to believe there has been quantum change in fundamental economics that means that the price of gold will continue to soar without taking breath, that is not the case.

Bitcoin has been even more volatile. It traded for a few hundred dollars until it blipped to $USD17,000 in 2017, then promptly fell back to $USD3,536 in 2019. It soared to $USD64,000 in ‘21, fell to $USD16,000 in ‘23 and is now trading at over $USD100,000.

So if you want a ride on a merry-go-round then Bitcoin is probably for you, but it is not an investment. The only way you can make money is to buy it at a price where you think you can sell it for more. If you don’t you’ve lost money.

With the US and Australian Government saying they are about to pump $3 billion   into the domestic rare earth industry, the same will happen there regardless of whether these mines will ever be viable in a global economy.

So you’re welcome to put your money into gold, or crypto currencies or rare earths as long as you know it’s a bit of a punt and it is anything but investing.