More signs of a gold bubble in its early stages

Gold futures began trading in Shanghai just a few weeks ago and now comes a report from Reuters about gold trading in Vietnam. Mix in the prospects of four-digit gold prices sometime in the not-too-distant future and it doesn't sound so crazy to hear that gold prospectors are now set to pour into the Alaskan wilderness.

There's got to be lots of the yellow metal still in the ground around here - we now live in the heart of California Gold Country - maybe we should go pick up a couple of miner's axes and go kick some rocks around.

With the gold price rising faster than the Fed can slash interest rates and quicker than the government can give money away, there are more signs of a gold bubble in its early stages.

First, this report from Ho Chi Minh City:

Business is brisk at the Saigon Gold Exchange in a grimy neighborhood of Ho Chi Minh City as Vietnamese investors bet on gold amid a turbulent stock market, rising inflation and currency concerns.

While historically Vietnamese have invested in physical gold, buying up gold bars and even buying houses with gold, they are now looking to gold futures as a cheaper way of investing in a precious metal seen as a safe bet in uncertain times.

Professional trader Truong, who asked to be identified by only one name because he wanted to keep a low profile, buys and sells about $200,000 worth of gold futures a day at the exchange, a small room where customers crowd around a single 14-inch flat screen which displays buy and sell orders and international prices for gold, crude oil and silver.

"Physical gold investment is highly risky these days because it requires a big investment, but more and more investors are switching to gold futures trading from the stock market," he explained.

"Gold futures provide more liquidity than stocks and are more attractive than physical gold because you only need to pay 7 percent deposits, lessening the need for capital," he added.

Well, leveraged speculation is an essential ingredient for any well-formed bubble and that's what you get with commodity futures, but you'll never hear me speak highly of this approach.

Call me old-fashioned, but $1,000 for $1,000 worth of gold (scale this up or down as it suits you) purchased long before trader Truong's friends and relatives hit the scene would seem to be a much safer and saner approach.

Moving north and eastward to Alaska, the ice won't begin to thaw for months, yet wild-eyed prospectors are already gearing up for a summer of fun with a 20-hour sun, searching for the "barbarous relic".

Details are provided in this story at RedOrbit:

Membership in gold prospecting clubs is climbing nationwide, along with sales of pans, dredges, metal detectors and other small-scale mining equipment. A trade show recently hosted by the Gold Prospectors Association of America in Orange County, Calif., typified the trend.

"I saw more people walking out with more metal detectors and sluice boxes than I can remember in a long time," said Ken Rucker, general manager of the 45,000-member association. "That $900 is really getting to people."

The group has received hundreds of calls and e-mails from interested gold seekers. New memberships are increasing, and the number of membership renewals at the close of 2007 was twice as high as the year before, said Brandon Johnson, the director of operations. As a result, the association is preparing to hire more staff.
...
Mining clubs are popular with hobbyists who want to avoid the paperwork and fees required to stake claims to gold. The groups have forged various agreements over the years that allow members to mine on government or private land.

"It's great to just go out and maybe find a little bit and just enjoy being out in nature," said Rick Segebrecht, a plumber in Oregon, Wis., who started prospecting there five years ago. "And there's always that chance every time we go out, you could find the big one."

There was a front-page story in the Saturday edition of the Wall Street Journal not long ago about some Wall Street type who spends his entire summer up there.

We may well visit the area this summer, though, we have no current plans to do any prospecting. Then again, summer's a long way off and who knows where the gold price might be by then - maybe we should pick up some gear before we go, just in case.

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