Gold Has Lost Its Luster

An email from a RealMoney reader a few weeks ago asked in part, "Anyway, are you for or against gold? It is not clear." I responded, "One cannot be "for" or "against" gold. Sometimes I'm bullish, sometimes I'm bearish. That's why it's 'not clear.'"

Because gold seems to be a religion as much as a market, this answer might infuriate some. After all, imagine the stunned silence in any religious gathering if you were to say, "Well, let me run the numbers before I decide whether I really believe this week. I did a month ago, so you never know. I still could be with you, brother."

But gold is a market and nothing more. And if I may allow myself one dig before proceeding, it is not a smarter market than any other, despite its proponents' claims in that direction. For if it were, the very smart traders who comprise that market would have acquired all of the world's wealth by now and enslaved the rest of us chumps. As Willie Nelson sang in another context:

All the Federales say,
They could've had him any day.
They only let him slip away,
Out of kindness, I suppose...

Gold's Warnings

First, you are invited to refer back to a column from early July on how gold had lost its constancy with respect to inflation and currency risks. This was a hint that gold was in trouble; when a market's behavior vis-à-vis its known fundamentals changes, its price is about to disconnect and move sharply. Sometimes, as in the case of the many bubbles we have seen in our collective lifetimes, the price can disconnect by going to unsustainable valuations.

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Howard L. Simons is president of Simons Research, a strategist for Bianco Research, a trading consultant and the author of The Dynamic Option Selection System. Under no circumstances does the information in this column represent a recommendation to buy or sell securities. While Simons cannot provide investment advice or recommendations, he appreciates your feedback; click here to send him an email.

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