Image: Bill Fleckenstein

Bill Fleckenstein

By now, everyone understands that the stock market mania that culminated in the dot-com lunacy was a bubble. Although a not-insignificant number of us were able to identify it as such at the time, the vast majority of people in positions of power in the financial industry were fooled, as were the masses.

Likewise the housing bubble, which was even more obvious. In hindsight, the diagnosis is crystal clear, but those who were espousing that view in the moment were regarded with skepticism (if not scorn).

This is one of the characteristics of an actual bubble. Almost by definition, only a small group spots a bubble in real time and isn't seduced by the siren song. If you think about it, that makes some sense, because part of what drives the creation and growth of bubbles is the belief that you are not in one. Instead of being suspect, parabolic price appreciation gets rationalized away with statements like, "new economy," "this time, it's different" or "housing prices never go down."

Conversely, a widespread belief that steep price appreciation is unsustainable is a good sign that you are not in the midst of a bubble, since it is an argument against joining the action. Whereas during a bubble all you hear -- in the media, at parties or even from the bagger at the grocery store -- are the reasons you should jump in before it's too late.

The reason I bring all this up is because inane commentary about the gold market being a bubble continues almost daily, even despite last week's sharp correction. (Read last week's column on the correction, "Gold's fall: Slip or the start of slide?"

Abstainer's remorse

These arguments ought to be enough to convince reasonable people there's no such bubble. But perhaps it is even more compelling to look at who is trying to "warn" us about gold.

I have not said much on this topic, because the idea of a gold bubble now is so inaccurate it's not really worth a response (which doesn't mean it won't become a bubble -- it probably will). But it recently occurred to me that virtually no one who recognized the tech-stock and/or real-estate bubble now says that gold is a bubble. In fact, almost all of us who identified those bubbles long before they burst actually own gold, and have for quite a while.

It is really only the people who missed the previous two who now think gold is a bubble. They were painfully wrong in the past, so now they are determined to spot the "next" one.

In addition, of course, I suspect that none of them own any gold themselves. So not only did they go 0-for-2 on the prior bubbles, they have also missed out on as much as 600% of appreciation had they bought gold, either physically or through investments like the exchange-traded fund SPDR Gold Shares (GLD, news). That is a recipe for bias if I have ever seen one.

I really don't understand why the media hasn't figured out that connection and at least scratched its collective head enough to ask: Why is it that the people who have been so wrong in the past think gold is a bubble, and that the people who have been right think it isn't? But such is the nature of bull markets.

As one of my smart commodity trading friends remarked long ago, with gold you can be contrary and with the trend. Granted, gold is nowhere near the contrarian idea that it has been in the past; rather, it is starting to go mainstream. But that is also something that happens in bull markets.

I suspect that before this is all over, the number of anti-gold critiques will go down, instead of being a feature of one paper or another once a week at a minimum.

When doves fly

If anyone needed another reason to own gold, it was provided by comments from Charles Evans on Aug. 30. At the last meeting of the Federal Open Market Committee, the Federal Reserve governor said that he "wanted to do more" easing.

Evans suggested that the Fed might consider keeping interest rates low until unemployment fell to "a certain level, maybe 7.5%, maybe 7%," or until "inflation became tremendously unacceptable." In other words, he thinks the Fed should target unemployment, inflation or both. (For what it's worth, his views were buttressed later that day, when last month's FOMC minutes revealed that committee members had in fact discussed those very subjects.)

Click here to become a fan of MSN Money on Facebook

As for any concerns about rising prices, he also stated, "Inflationary pressures are not nearly as strong as a lot of people think." Lastly, he noted, "I really don't need to see a lot more data to understand that we haven't achieved escape velocity. We need to do better." Personally, I think he meant to say "more," not "better."

Any questions?

At the time of publication, Bill Fleckenstein owned gold and gold-related stocks.

This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.