Editorial Contributor
Dominic Picarda is a Chartered Market Technician and has been responsible for the co-ordination of the Investor’s Chronicle’s charting coverage for four years. He is also an Associate Editor of the FT and frequently speaks at seminars and other trading events. Dominic holds an MSc in Economic History from the LSE & Political Science.
DoMiNiC PiCARDA’S TEChNiCAL TAkE i’M FoREvER BLoWiNg BuBBLES... is the recent, out-of-the-blue crash in gold the start of a scary new trend? Following the yellow metal’s 17 per cent collapse in just five days, some traders are wondering whether other assets might be in for the same. The theory is that we now live in an age of bubbles, where many markets have become artificially inflated by all the central-bank money being pumped into the financial system. While the bursting of a bubble typically causes misery to buy-and-hold investors, it’s a great opportunity for short-term traders. Bubble-moves — both up and down — can deliver super-charged profits to those bold enough to get involved. Because of the speed of these moves — and particularly the reversals — timing your entries and exits is even more important than usual however. With this in mind, it makes sense to look at some leading financial markets and ask whether they are in a bubble and what opportunities there may be now and in the future. As well as gold, US stocks and UK government bonds are probably most often mentioned as being in a bubble.
gold Having soared by 650% between July 1999 and September 2011, gold appeared to many to have gone too far, too fast. The yellow metal is an obvious candidate to suffer a speculative bubble: it bears no income, making it very hard to value. The range of opinions out there reflects this. Following the recent plunge to $1321, one enthusiast said it should head for $10,000 in the years ahead, while a cynic wrote that $800 represented “fair value.” How’s that for divergent views?
48 | www.financial-spread-betting.com | May 2013