I’m not sure that I am, but call that question a rhetorical device to get me thinking and to provide something to write about.
Gold has done decently over the past handful of days, but it sure feels like it spends way more time playing with support levels than trying to test resistance. On the heels of Cyprus, you have a digital currency doing what you might have expected out of gold, and people like George Soros observing the same. Kyle Bass would rather be in gold than in paper, but is also at a loss for explanations. Fleckenstein, nothing to add. Kuppy, buying but not prepared to say a bottom is definitely in. I guess Faber sort of did that, but a “tradable bottom” sounds a lot different to me than a re-ignition of bullish tendencies.
So, what gives?
Two things come to mind.
First off, central bankers still have credibility. The fear of inflation is greatly outweighed by the instinct to be optimistic and to believe that government policy will work its magic. Most people, I think, are prepared to buy the cheerleader story because it’s easier to digest. There is no reason to believe the bears (or realists) because what they have called for hasn’t shown up in a quantifiable way yet (unless you have the ability to remember two recent bubbles, I suppose). So, you just don’t need gold.
Second point, which is compounded by the first, in a market driven by algos, and with ETFs that make every asset essentially the same (i.e., just candlesticks on a chart with resistance and support levels), fundamentals are no longer driving the boat. It also makes moving into and out of gold far easier for weaker hands and trend followers. As optimism is more prevalent right now, and gold isn’t needed, selling begets selling as charts get uglier. How long that will last is beyond my expertise.
So, in essence, a lot of what’s going on has an ephemeral component that can’t be quantified or fully understood. Which means it will test your will since it can last for far longer than one would reasonably expect.
But, lest we forget, money-printing is only becoming more pervasive, meaning the environment should only become even more conducive to gold. When more people finally connect the dots is a moment that I deem inevitable, even if it’s not imminent. I guess the only advice is to avoid leverage so that you can make it through to see the other side.
