E Gold – “Make Me Feel Good…Tell Me Anything”

Most technical analysis of gold boils down to “what the charts tell us about gold’s next move”. The next move according to most seers of the trade – is “imminently bullish” and represents one, last chance for investors to save their financial souls.

The problem is that more people have lost more money by ‘investing’ in gold upon the advice of those who proffer it, than will likely ever be made up going forward.”…Kelsey Williams

There are several reasons for that.

First, most services provided on a retail basis (newsletters with special bulletins, buy/sell recommendations, daily and weekly charts, etc.) are geared for traders, not investors.  And most of the advice is short-term in nature. There is considerable lip service to the big picture, of course. But that is usually offered either to emphasize the immediacy of the prediction or justify why it is taking so long for the expected results to materialize.

Second, advisors and their clients continue to view gold as an investment. Big problem. Gold is not an investment. It is money. And it is real money because it meets all three specific requirements of money – medium of exchange, measure of value, and store of value.

Third, unrealistic expectations. Since gold is not an investment, it does not respond to any of the things that most people characterize as “drivers of the gold price” – political instability, social unrest, global wars, changes in interest rates, etc. Hence, the logically expected results don’t happen. The problem is not in the logic, but in the underlying premise. Actions taken in belief that gold is an investment will yield unexpected results.

There are some who think they can predict the price of gold based on mathematical calculations of the extent to which the money supply has been inflated. But the effects of inflation are volatile and unpredictable. The price of gold is a reflection of changes in the purchasing power of the U.S. dollar. Since the U.S. dollar is continually losing value over time, this results in a gold price which is continually higher over time.  The specific results of the inflation are impossible to predict.