By David Lew
December 2 will be coined as another memorable day in the history of bullion market and gold. Today, gold soared to an all-time record of $1218 per ounce, proving right several global commodities analysts like Jim Rogers and Marc Faber who have predicted a boom in gold prices upto $2000.

But December 2, Wednesday will be remembered for another ‘disturbing utterance’ from China. The Chinese central bank—the People’s Bank of China—said that gold market may be on an asset bubble. The unprecedented rise in gold prices has put fear in the Chinese central bank that said bubble conditions are getting around gold.

Why is it that China is talking of a crash in gold prices, wherein central banks from across the world—especially India’s central bank, the Reserve Bank—are aggressively buying gold reserves in place of the declining dollar foreign exchange reserves. While India jumped into the fray to buy gold reserves of 200 tonnes from the International Monetary Fund (IMF) last month, China has announced that it plans to amass as much as a mind-boggling 10000 tonnes of gold in the next 10 years!

Some bullion analysts have predicted that gold prices will go up and stand above $2000 forever, if the Chinese builds gold reserves as the country has proclaimed. In fact, China has emerged as the most aggressive gold buyer and producer in the world. China’s gold market is booming; Chinese people are banking on gold jewellery, taking it as the best investment asset.

So why is it that while China is aggressively pursuing to mop up gold reserves, the country has warned that gold price is sitting on a bubble? Dubai-based bullion analyst Mark Robinson says China wants the gold prices to crash because “the Chinese central bank wants to buy the IMF gold below $1000 ounce.”

There is some sense in what Robinson argues. But what are other reputed gold analysts saying on China, gold reserves and gold bubble? Check out what Jim Rogers, Marc Faber and Nouriel Roubini have to say on gold bubble below:

Marc Faber
Marc Faber says gold still has the potential to go under the $1000 mark, even as low as $800 - $900, suggesting that the current gold price is on a bubble. Gold's also forged ahead despite a revered gold bull of long standing sending up the warning flag. Two weeks ago, Marc Faber – "Dr. Doom" – warned that gold was at risk for a major correction; this warning, he later rescinded because of gold's continuing rise. There's already signs of complacency from at least one lesser-known gold bull. And, as the gold price continues to climb, a New-Era rationale is taking form.

This rationale starts off with two solid observations: gold also serves as a crisis hedge, and it tends to move in opposition to the U.S. dollar. Recent central-bank gold purchases, particularly India's, and recent Chinese complaints about the dollar are factored in. All of these put together gives a real New-Era story, which we'll hear more frequently if gold keeps rising: The U.S dollar is losing its reserve currency status, and gold will be (at least part of) its replacement.

Jim Rogers
Jim Rogers, co-founded the Quantum Fund with George Soros, who is now settled in Singapore believes that there is no sense in China’s fear of a gold bubble. Rogers has already predicted that gold will zoom to touch $2000 per ounce. He says gold consuming countries like China and India, central bank buying and declining dollar value are driving up gold prices and therefore, gold is not sitting on a bubble.

Investment legend Jim Rogers says that the recent sharp increases in commodity and stock markets don’t constitute a bubble. “The only bubble I see forming in the Western world is in the U.S. government bond market,” he told Bloomberg. “Other than that I don’t see any bubbles going on.”

Nouriel Roubini
Much has been made of the Nouriel Roubini/Jim Rogers Bear vs Bull Battle in the last few days. It’s obviously a media fuelled debate. Apart from the definition of a “bubble” and the price of gold, I’m pretty sure these guys are investing in the same things: Emerging economies and commodities.

It’s not surprising that the likes of Jim Rogers and Nouriel Roubini disagree on a great many aspects of the economy. They are the standard bearers for multitudes of the Bulls and Bears, respectively; they are expected to pontificate within a relatively predictable line of reasoning.

What’s surprising is the degree to which the viewpoints appear to have have diverged. On one hand Rogers is saying gold will top $2,000, possibly go even as high as $10,000 per ounce during this bull market. In a follow up article, Bloomberg quoted Roubini as saying the idea of gold going to $2,000 per ounce was “utter nonsense”. Maybe $1,100 or so, says Roubini, but that’s about it.

David Lew is a bullion commentator with Commodity Online. You can contact him at info@commodityonline.com

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