Clearly, the price action in gold has been disappointing. Only to be made worse as the bears are coming out in force to rub it in. Time will tell who's right, but there's no denying that gold has not acted the way you would've expected given what's taken place.
Anyway, one idea I saw somewhere is that the Austrians understand the cause of the bust, but it's the Keynesians who know what to do when faced with recession. And if I take that at face value, it might suggest that the Austrians, and their predilection for gold, are simply on the wrong side of history in this period.
But, then I remember, what's happening now is really just the final act of a play that's been going on for more than a decade. It started with easy money around the time of LTCM's blow-up. What followed was a stock bubble. And when confronted with a recession, the pumps were primed again, and we were led down the path of reckless finance and irresponsible consumers, and ultimately a housing bust that engendered a financial crisis. At each step, the blow-up was bigger and the consequences greater.
The concluding chapter is therefore on an even grander scale. It involves stocks, but especially bonds, reserve currencies, and the fate of entire economic unions. The solutions being offered resemble the solutions that were touted after LTCM and then after Nasdaq. Why will this time be any different?
I think gold is the right investment for what's coming, and given what's been done already. And like those earlier episodes, the insanity might persist far longer than seems reasonable. It's very possible that the key support level around $1,550 won't hold this time. I'm not sure. I think markets are not very rational much of the time. Eventually they get it right though.
Why will this time be any different?
