What is it about gold that makes people view it differently than any other asset class, creating an almost religious fixation* on the metal? As long-term monetary insurance, you would think that it would be among the more boring items; sort like insurance annuities. But that is not the case.
Gold is routinely propped up on a pedestal and obsessed upon in the world of money and finance. In actuality, gold is a geological element that has been deemed by humans to be money or to closely track monetary value, with a track record measured in centuries. Why, there it is on WebElements‘ element chart bracketed by things like Mercury, Cadmium and Copernicium, among other ‘precious’ metals.
There is no fever like gold fever’ I suppose, and that is what gets many market players in trouble. How can an asset of unquestionable value be trashed so routinely and with such ease when US and global policy makers are taking their inflationary operations to new heights, right out in the open? Why, the US just nominated Bernanke clone Janet Yellen as the new Fed Chair. Gold should skyrocket!
Well no, it shouldn’t because it hasn’t. As a counter cyclical asset (counter to the economic recovery that policy makers are trying to engineer) its price continues to reside in the dumps as the average market participant still leans toward confidence in policy makers and a view that “the crisis” is over; meaning that the crash of 2008 was a ‘one off’ that was the result of some financial institutions that screwed the pooch and have been brought back in line.
Gold is simply a value marker and insurance against the possibility that the US crisis in 2008 and the European crisis in 2011 were emblematic of much deeper and ingrained problems that will bubble (no pun intended) up to the surface once again at a place and time yet to be determined. Gold is insurance in support of the idea that new debt can leverage, but not fix, the economy. That is gold’s ultimate fixation.**
The bottom line is that gold should not get caught up in some kind of imagined war of good against evil. That is because it is not an idol, it is a tool to be used by right-minded investors to protect themselves against certain financial risks while going about business in an increasingly complex and leveraged financial system.
If they have fixed*** the system, gold is done for now. We’ll keep watching gold’s ratios to positively correlated markets for the big picture clues there. If they have not fixed the system, people who calmly viewed gold as a value instrument rather than a speculation play in the casino, will be rewarded.
Meanwhile, I would advise tuning out the gold price micro managers, the gold bug cheering squads and the likes of the Vampire Squid itself, Goldman Sachs, with its ‘bearish, no bullish, no bearish…’ line. It is all noise.
* Fixation, def. 1: n., an obsessive interest in or feeling about someone or something;
** Fixation, def. 2: n., the action of making something firm or stable
*** Fix, def. v., mend; repair