What has fundamentally changed in an investment in gold in the past 12 years to justify such an upward trend? I can use an ounce of gold the same exact way I used it 12 years ago. It still does not offer me any service and it still pays no income.
One possible explanation is: people have a hard time figuring out the true value of intangible goods and thus might still find tangible goods to be more easily quantifiable. This is puzzling to me because more than 80% of us work in service related jobs and should be able to appreciate the value of services and should also be more capable of pricing it using qualitative methods. What is so puzzling about it, is to see the value of some equity shares at the same level they were 12 years ago when gold is up 7-fold in the same time period!
I believe we have set the bar so high for public firms, that we no longer value companies on what they are worth in both quantitative and qualitative terms but rather solely on how much they grow year-over-year. And when they stop growing as fast as they did, we immediately turn to “quality” investments, like gold, which have no growth potential, add no value and create no wealth (income). Gold bugs will say. well, gold is a currency and with all that money printing…..well it justifies why gold should have qualitative value. I don’t disagree. But why do we only value gold this way and not a company that develops real estate or makes electronic devices or offers its expertise?
I think investors' reasoning in their decision to buy commodities rather than company stocks is too simplified and to me, considered random. I have now concluded that I have no clue where the price of Gold will be tomorrow or next week or a year from now. I find it impossible to be able to decipher order in the gold market and track trends. To me, the gold market price increases are extreme. And since extremes is a faulty human tendency, it can be justified by number anchors most of the time...but once these irrational tendencies, scale back to more normal distributions, we will once again be able to decipher order...This is a time when outliers prove that the system is sound and working...With that said, I’ve been wrong in my gold price predictions before...