Do gold bugs need a therapist?

March 31, 2014 04:00 PM

Today, gold (COMEX:GCK14) slipped back below $1,300 per ounce. It appears to be in a narrow band, rising above and then falling below that level. Were I a spry 20-something market observer (or participant), this would be non-news but I am of a "certain age" with memories of when gold cost $35 per ounce.

Inflation, of course, accounts for part of the gold price inflation that has occurred since then. So does hoarding in countries that have an ambivalent attitude toward their official currencies. And, to a lesser but still important degree, incessant advertising by U.S. vendors ("The purchase is Government-guaranteed so it is eligible for your IRA") can take some credit. Who doesn’t trust William Devane?

But why? If the dollar crashes tomorrow, people will have a good laugh at my expense. But, until then, I have a few questions.

With industrial demand being limited, what economic sense does it make? Since you can't eat it when hungry, or wear it when cold, or cuddle under it in the rain, what "protection" does it provide? Because it does not pay interest or dividends, why should one prefer it over investments that do?

Gold, to me, has less to do with economics and more to do with psychiatry. It seems to be driven by mental compulsion rather than hard analysis.

I have a modest retirement account. None of my financial advisers has recommended gold as a good asset to own. And, as an observer of the markets for half a century, I am simply baffled by this phenomenon. It seems surreal to me. That said, there are many "Gold Bugs" who have a faith in the precious metal that approaches religious fervor. The Bible refers to gifts of "gold, frankincense and myrrh"; I have no clue what the last two are but know only that the first term refers to a shiny metal that exists in wedding rings and Rolex watches and is relished by potentates.

I do not expect gold to revert to $35 an ounce anytime soon but I am incredulous that it currently sells for 37 times that amount. Even so, it does. If the "market" is always right, I am missing something. If anyone can tell me what that is, I will be eternally grateful.


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