I'm a day late in picking this up, but Jonathan Finegold Catalan poses some interesting questions about stock market action and gold.
Starting in reverse, as you may recall, some time back there was a blog exchange between Paul Krugman and Bob Murphy about why the price of gold was going up. Krugman tried to boil it down to one explanation, consistent with his model and view of the world. But, as Catalan notices, he is incomplete -- Krugman identifies the desire of gold owners to hold rather than sell (with negative interest rates contributing), but fails to identify any catalyst, generally, for why gold should move higher prospectively. While Catalan does not necessarily explore those reasons, I think it's worth a moment to ponder.
It starts with the fact that US economists (think Krugman, DeLong, Roubini) employ a very US-centric view into their analysis, treating gold as some sort of absurdity that gets too much attention from the fringe element. And, in being so dismissive, they end up paying short shrift to gold's historical role as a monetary asset -- that a lot of people in places like India and China (you know, real small countries) continue to take very seriously. Therefore, as everyone knows that money-printing is the order of the day, these non-Western folks are happy to hold gold because they seem to understand currency debasement. More fiat but the same amount of capital and resources -- what could that possibly be a recipe for? So, while a gold standard may not be an inevitable outcome, the end of the dollar standard is. And gold should do just fine along the way.
As to why the stock market moves the way it does, I still believe that most of it is just noise. Sentiment captured by moves up, down and sideways (this being the best reason to use technical analysis). If you believe in Keynes, it is the "animal spirits" of it. Or Higgs, the notion of uncertainty impacting behavior. So, while in the "micro" timeframe things can seem out of whack, if you wait for the "macro" timeframe to play itself out, you mostly end up where you think you should.
