Investment Adviser Warns of Possible Gold Bubble

BETHESDA, Md., Dec. 11, 2012 /PRNewswire/ -- Arthur Stein, a Certified Financial Planner® who has advised capital area clients for more than 20 years, suggests that the current worldwide gold market may be a bubble about to burst.

In a blog post at www.arthursteinfinancial.com, Stein explains that worldwide demand for gold is declining while prices and supply are increasing. He also points to an unusual phenomenon: The supply of gold only increases over time. It never declines because, unlike other commodities, it is never consumed. 

"Investors purchase gold on the assumption that some future investor will buy at an even higher price," Stein writes. "That's sometimes called the 'greater fool theory,'" and it is a shaky assumption when demand is declining while supply and prices are increasing."

Citing data provided by the World Gold Council, Stein reports that worldwide demand for gold declined 11 percent in the third quarter of 2012 compared to the third quarter of 2011. In the first three quarters of 2012, demand for gold declined 4.7 percent compared to the first three quarters of 2011.

At the same time, the price of gold actually increased – by 9.6 percent from the end of September 2011 to the end of September 2012.

In his blog, Stein also notes that demand for gold has been declining in all sectors except purchases by central banks. Comparing the first three quarters of 2012 to the first three quarters of 2011, jewelry demand  and industrial demand both declined 9 percent while investment demand declined 3 percent.

Specializing in financial planning, investments and insurance, Stein has published 22 articles and speaks frequently to professional and consumer groups. He is an adjunct professor at Montgomery College, where he teaches courses in investing and financial planning, and he taught at Murdoch University in Australia. Stein is also a member and former board member of the Financial Planning Association of the National Capital Area.

Before founding Arthur Stein Financial LLC, Stein worked for other financial planning firms in the greater Washington area. Earlier in his career, he directed the foreign aid program of the nation of Botswana. He also was the first full-time staff economist for the Ways and Means Committee of the U.S. House of Representatives. He earned a bachelor's degree in economics at Tulane University and a master's degree in international economics at Johns Hopkins University School of Advanced International Studies.

SOURCE Arthur Stein Financial, LLC