Has gold lost its shine?

The following column was published in The News Star on Saturday, June 7, 2014.

Question: What’s happening with the downslide in the market price of gold? When can we expect gold’s price to increase?

Answer: The last time I wrote a column addressing the price of gold was 2007. At the time, gold was trading for about $700 an ounce. At this writing, gold is trading for a tad above $1200 an ounce. That’s about 8% growth per year.

Of course, you’re not talking about today’s $1200 price. You’re talking about the $1800 price that gold peaked out at in September of 2011. And measured from that lofty peak, gold has fallen about 12% per year.

As human beings we are ever in search of easy-to-understand explanations for very complex events. Every day you can turn on your TV or check your go-to website for an “explanation” of why markets went up or down that day.

“How comforting to believe that there is a reason why markets go up and down, and that this reason is clearly identifiable and attributable to the decisions of a few Wise Men and Women, as opposed to the much scarier notion that the world (and markets) are adrift on a sea of chaotic events and hidden currents.”

That’s money manager Ben Hunt’s way of saying, “The talking heads on TV don’t’ have a clue.”

Hunt has some thought provoking ideas about gold as well.

“Gold is just not important in the same way that it was important 100 years ago,” Hunt writes, “and that shift in meaning makes all the difference in understanding the price of gold.”

He continues, “J.P. Morgan said that gold is money, and he was right, but only because at the time he said it everyone believed that everyone believed that gold is money. Today that same statement is wrong, but only because no one believes that everyone believes that gold is money.”

Yeah, I know. It’s early. Go back and read that sentence again. It will make more sense the second time.

Hunt explains, “To market participants in 2013 gold means lack of confidence in money, and their behavior in buying and selling gold similarly reflects this meaning. Buying gold today is a statement that you believe that global economic events may spiral out of the control of Central Bankers. It is insurance against some sort of massive monetary policy mistake that cannot be fixed without re-conceptualizing the global economic regime – hyperinflation in a developed nation, the collapse of the Euro, something like that – not an expression of a commonly shared belief in some inherent value of gold.”

All markets are simply a reflection of the current opinions of its participants. Gold goes up or down for the same reason any other commodity or security goes up or down: the market, for any mind-numbing number of reasons, has opined that such-and-so is the right price…for now.

Hunt is suggesting that the price of gold is being largely influenced by the public’s belief that central banks can keep things more or less on track economically. By Hunt’s rationale, if the public begins to lose that confidence, one might expect the price of gold to turn north once again.

What do you think? I’d love to hear your opinion on the topic.

As much as any other topic, gold has its passionate proponents and detractors.

My advice would be to not bet too much on a prediction either way.

Byron R. Moore, CFP® is Managing Director / Planning Group of Argent Advisors, Inc. Email him at bmoore@argentadvisors.com. Write to him at 500 East Reynolds Drive, Ruston, LA 71270 or call him at (318) 251-5858. The opinions of any single advisor do not necessarily reflect the opinions of Argent Advisors, Inc.  No forecasts can be guaranteed.  Argent Advisors, Inc. does not offer tax, insurance or legal advice.  The information contained in this column should not be construed as a substitute for personalized investment, tax, insurance or legal advice.

^{Source: John Mauldin - Outside the Box - July 3, 2013}