22
June
2010
Many commentators are currently claiming that gold is in a speculative bubble and that therefore the price is sure to collapse shortly.
We believe that attempting to form a portfolio based on predictions of the future is bound to fail simply because the future is uncertain.News and events in the future are unpredicatable and therefore effect markets in unpredictible ways - think of September 11th 2001 for example.
Our view of the efficiency of markets is that the current price of any publicly traded asset reflects the views and opinions of all market participants (both positive and negative) and is therefore the best estimate of it's fair value.
We are all wise after the event and past events seem obvious in hindsight, but the fact remains that in order for prices to clear in any market, buyers and sellers have to agree to a price that is fair to both parties. At the instant that any trade takes place, it is therefore reasonable to assume that the price paid is the best estimate of fair value for both parties.Each new trade reflects the news and events that have been incorporated into the price since the last trade.
In reality, we only find out after the event, once new information comes to light and prices incorporate this new information where the future price is headed.
By this reasoning, investors are always paying a fair price based on the knowlege and information that we have at any given time and attempting to predict the future is a dangerous game to play.
For a review of asset bubbles since 1926, please click on the image below:
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