Ignore the Momentum-Driven Rationalization — There Is Value in Gold

Gold bullion

Source: http://www.flickr.com/photos/digitalcurrency/

On Wall Street, a falling price often leads investors to do two things. The first is to rationalize the decline, and the second is to assume that the decline is set to continue. This is precisely what happened with gold in 2013. The price fell 28 percent in 2013, and the media is filled with so-called “experts” justifying the decline and claiming that it will continue.

Take, for example, an article published on the morning of December 31 by CNBC’s Matt Clinch entitled Gold Sees Biggest Annual Loss in Three Decades. The first sentence reeks of rationalization: Gold fell because investors sold their gold to buy equities. No evidence is given that such transactions took place.

The article continues to argue for lower gold prices. Clinch cites two bearish analysts. The first, Nick Hungerford of Nutmeg, claims that gold will hit $1,000 per ounce because the aforementioned trend will continue. The second, Roger Nightingale of RDN Associates, believes the price can fall as low as $500 per ounce because it has no yield and because those who bought gold in order to sell it at a higher price will feel trapped in their positions and be forced to sell.

These arguments amount to little more than momentum-driven rationalization characterized by circularity — “the price will go down because people will sell, and people will sell because the price is/has been going down.”