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Why I’m Excited to See Gold Lose Its Lustre

Over the last couple of weeks gold prices have fallen through the basement or what technical analysts might call a “resistance point”.  While the “gold bugs” out there are trying to maintain that “this time will be different” (I love when that phrase is used by people in the investing world – it’s almost never different by the way) relative to the steep declines that gold saw in 1980 and every other time gold has had a large run to some extent.  In fact, I’d be shocked if gold didn’t lose 40% of its value in the next 3-4 years.

No Skin In the Game

So where does this leave everyone?  Well, I should admit right up front that while I was fairly certain gold was going to fall off of a cliff at some point, I did not put my money where my mouth was and short the precious metal.  As a fairly young investor my portfolio is too small for me to go taking big risks like that, so instead I’ll watch my broad market indexes go up as investors finally wake up from their Glenn Beck-induced comas and realize that companies make money, not bars of a certain “special” kind of element.

The Golden Rule?

In terms of the greater economy, I think this rush out of gold by retail investors is an extremely positive sign.  The reasoning behind that is the fact that the price of gold is largely a commentary of how people feel about other parts of the economy.  There are no “fundamentals” to examine when considering gold like there is when evaluating a company.  Even its metallic cousin copper is at least sort of tied to basic market truths dictated by industrial growth.

Why I’m Excited to See Gold Lose Its LustreWhile a sizeable chunk of the world’s gold is used for jewellery (a complete luxury that the world could do without tomorrow), and it does have some industrial uses, the price of gold is dependent upon peoples’ general mistrust of the economic system.  If you believe that money will soon become nicely coloured toilet paper and the overall financial system is going to fail, then the gold as a “safe haven” philosophy could look very attractive.  If you believe that the world’s markets will continue to muddle through messes as they have for quite a long time now, and that companies will continue to generate wealth for their shareholders, then having more than 5% of your portfolio in gold makes no sense at all.

A Sign of Faith

This is why I’m happy that gold is going down.  The more money flows out of this precious metal that doesn’t do much beside sit on people ears and fingers, and into companies that I’m invested in (and which raise standards of living around the world I might add) the better off society is, the better the overall financial markets will do, and the better off my investment portfolio will be.

And let’s be honest, the main reason I’m happy about this plunge in gold is so that I can say “I told you so” to all the gold bugs out there.  There is still a lot of bubble-popping left when it comes to this ancient form of currency.


  1. SilverSurfer

    This gold correction is a short to medium term one at best. There is no doubt that monetary easing and printing will continue, as will the debasement of currencies world wide. This will gradually push precious metals to all time high’s without a doubt in the coming years.

  2. Canadian Dividend Blogger

    I believe the 5% rule, rebalanced occasionally, is a good way to satiate the gold bug in an investor. You are buying more on the way down and selling on the way up. Still, I don’t have any as it doesn’t pay cash returns.


    I too am glad to see gold back of its high but not for the reasons TM states. I am looking to invest further in gold and enjoy the ride back up when the whole mess that the various leading world economies are creating by continuing to print worthless paper to prop up countries that are already in the tank.

  4. Kyle Prevost

    Yup, Cal and SS “This time is different” right? Go ahead and look up how often that phrase is correct.

    • SilverSurfer

      Can anybody argue that Gold and Silver have NOT been up 10 straight years and is NOT in a secular bull market? I think we are going to see the final phase of this market in the coming years with a massive blow off top which normally occurs at the end of such a run.

  5. HS @ SmartMoneyJunction

    The gold bubble that had built up was bound to burst sooner or later, and it’s good for everyone that it has happened now itself rather than trapping more people and then going down. Now we should be more sensible and only buy small quantities on dips.

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