The price of gold is down $60 over the last three weeks, and that is telling us a lot even if you are not a gold investor. Gold failed to break above $1800 an ounce in this latest rally and that is telling us that gold does not have momentum to reach new record highs. So what is gold telling us about the world?
The first thing it is telling us is that inflation is not a big threat. Gold is an inflation hedge, so when there is no threat of inflation there is no reason to buy gold.l
The second thing it is telling us that the world wide economy must be slowing. Gold is also a measure of wealth and gold jewelry is a way to show wealth. With gold prices dropping, there must not be much demand for gold jewelry or much demand for storing wealth.
The third thing it is telling us is that investors are finding better places for their money. In times of strife scared money runs to gold. But with gold prices falling it's an indication that there isn't that much scared money or strife and this "smart money" must be finding other avenues.
I'm not sure how all of these pieces fit to finish off the economic puzzle: no inflation, no wealth, no strife. Perhaps it only means that there is no clear trend for the world wide economy? On the other hand the lackluster performance of gold might also mean that the world is not falling apart either.
What do you think?
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