Sometimes it seems as if there are two types of bubbles. The are good bubbles, which while they fuel too much hope and can lead to pain when they burst, are at least built upon foundations which create wealth. Examples of good bubbles include the dotcom boom, and the rail road boom of the mid-19th Century. History may even tell us that the credit boom of the first decade of this millennium was a good bubble, because it funded new technology and lubricated the economy as it went through a period of change.
Some bubbles are just plain irrational. They occur because investors pile into something for no better reason than it rose the day before.
There were elements of those characteristics in the dotcom bubble and the credit bubble – but atleast there were other reasons for these booms too.
Sometimes, bubbles such as Dutch Tulips or the South Sea Bubble were built on and crashed on the founding stones of greed and fear.
Sometimes, if seems as if the property bubble is another such example.
Here is another example.
This morning, the BBC focused on a yellow metal. It told us how to acquire it, and why in times of doubt, it is such a good bet.
Maybe it is a good a bet, but be under no doubt, any growth we see in the price of gold from this point onwards is down to one factor only. It is rising because it went up the day before. People are buying gold because it is rising in price.
Other factors, such as demand for gold rising because of its popularity as an item of jewellery in India or OPEC Countries, and its use as a conductor of electricity, ceased to be relevant some time ago; the current price of gold is far too high to be explained by these factors.
The yellow metal may rise some more, maybe a lot more – but the boom in the price of gold is a bubble, and when the mass media jump on the gold bandwagon you know this must be true. What goes up, must come down – and gold will not be an exception to this rule.
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