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The Daily Reckoning

What will the end of gold's bull market look like?

Gold is in a bull market, not (yet) a bubble. It will probably stay in a bull market for a long time. And before it declines, gold may climb a hundred dollars a day – or more.

By Guest blogger / November 11, 2010

A 999.9 fine, 100 troy ounce Engelhard gold bar is seen on the floor of the New York Stock Exchange Nov. 9. Gold's bull market will keep running for a long time – possibly too long for many investors.

Shannon Stapleton / Reuters

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“Is gold going vertical?”

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The question was put to us by our Family Office strategist, Rob Marstrand.

“We could be getting to the final stage of this bull market faster than we thought,” he added.

Yesterday, the price of gold rose to new record – over $1,400. This was also the day that news reached the world that the head of the World Bank had defected. Mr. Zoellick jumped the fence…he’s no longer among the dopes.

You know who we’re talking about…the vain and foolish economists who think central planning will work. “Give the economy more liquidity!” “Raise rates!” “More fiscal stimulus!” “More austerity.”

These guys act like they know what they are talking about. But they are quacks. Mountebanks. Phonies.

Not Zoellick. He said it was time to begin talking about a new gold standard.

Gold jumped $5. What can stop it now?

But there’s always a surprise, isn’t there? We know that the dollar is going the way of all paper – to the dump. Maybe the surprise is how long it takes to get there.

Maybe gold is going vertical. Or maybe it is just toying with us.

A friend came to us over the weekend. He had four Austrian Corona 1 oz. gold coins. He wanted to sell them.

“I just need some cash now. It breaks my heart to sell them, but I’ve got to pay expenses.”

The expenses were a little unusual. He was buying a ticket for a Vietnamese woman and her children to come to the US to live. But that’s another story…

Somehow, your author has gotten a local reputation as a buyer of gold coins. So much the better. We’re not trading. We’re not investing. We’re just adding a coin now and then to our collection. We buy. We put them away. We forget about them.

“But at $1,400 an ounce?” you ask. “Isn’t gold in a bubble?”

Well, yes…and no. We liked buying the coins much more at $500 than we do today at $1,400. The price makes us a little nervous.

Gold is in a bull market, not yet a bubble. It will probably stay in a bull market for a long time – until they re-establish a gold standard for paper money…or until the international monetary system cracks up…whichever comes first.

But there’s something a little dangerous about $1,400 gold. Too much, too fast. Of course, in the final stage of the bull market, the yellow metal will trade for far more. Ordinary people will buy gold to protect themselves from inflation. They’ll get sick of watching prices on bread, diapers and gasoline go up. They’ll be desperate to grab hold of something more stable. They’ll buy gold at almost any price.

But we’re not there yet. There’s very little consumer price inflation now. The inflation we’re experiencing so far is the monetary kind – an inflation of the monetary base, not consumer prices. No one particularly cares about this kind of inflation. The other kind of inflation – in the CPI – could still be years ahead.

Right now, the economy is still de-leveraging. Bloomberg has the news:

US households cut their debt last quarter, borrowing less against homes and closing credit card accounts, according to a survey by the Federal Reserve Bank of New York.