Thinking Outside The Gold Box And Coming Up With Contradictory Ideas

One would have thought that after Tuesday’s big drop in gold there would have been at least decent interest in the Asian market, if only to create and then ride the bounce. That wasn’t the case. Interest was at best marginal.

The name of the game today is equities. You might ask: Why aren’t equities responding in the same way as gold to the Fed’s interest-rate hike as it looms ever closer and seems ever more concrete? 

Simply put, your opportunity cost doesn’t rise much if you’re borrowing (or laying out) money at 0.75% or 1.00% when buying stocks. It matters with gold, especially physical gold.

Equities also “feel” hot. Gold does not.

We’ve asked this next question a number of times in the last year.

Why would people invest in physical gold? Futures, sure, can make a good deal of sense.

But, the U.S. economy, even with all its glitches and halts, is growing. The stock market is booming. The Asian stock markets are booming and booming. Even Europe is showing pretty good gains.

Another problem gold has is commodities in general. Prices for almost everything are down from a year ago, from energy to lumber, from soybeans to lean hogs. Cattle are up, but that is only because of temporal problems like drought and the attendant herd sell off.

Let’s go a little farther outside the box. In 1929, Sigmund Freud wrote a short book called Civilization And Its Discontents. Among many other things he said in it, “We are so constituted that we can gain intense pleasure only from the contrast, and only very little from the condition itself.” 

Right now, gathering in the gold market is a fundamental force of human behavior: dissatisfaction.

Investors, traders and analysts are frustrated about the price range gold has been operating in. They are trying to figure out – and guide – the next big move. This happens in markets all the time. It even happens at the grocery market when you buy one thing because you couldn’t buy another for some reason related to frustration.

So, while it is too early from a fundamental point of view to call which way that frustration will be released, make no mistake, the day is coming when the market will break.

Think of a hot, humid, stagnant summer (or spring) day when the energy builds up and a thunderstorm has to come regardless of what meteorology says.

Wishing you as always, good trading,