"Why would anybody buy gold except for fear?" asks Don Hays, the founder and chief investment strategist at Hays Advisory Group. And truth be told, it's a question lots of investors are asking lately, as the price of the most widely held precious metal has shed nearly 25% in seven months, and by Hays's calculations, could shed a comparable amount again as it shrinks back down to $1100 an ounce.
"If you look back, when the price of gold started moving up, it's almost perfectly synonymous with September 11, 2001. That's when the fear really started rising," Hays says in the attached video.
Interestingly, he finds gold to be more useful as a "fear index" than an outright investment, and explains that it's expected weakness bodes well for his core equity investments, and even the world.
"The terrorism effect obviously is starting to improve, democracy is starting to improve, the price of oil is coming down, so all of those things play into a much better (investment) environment for the next 10 to 15 years. That is what gold is telling us," he says.
To be sure, gold's 12-year run to record levels coincided with lots of what Hays refers to as "massive distortions and worries," including the financial crisis, a technology revolution and, of course, an unprecedented rise in global terrorism.
Some will dismiss the weakness in gold as the result of a resurgent US dollar, but Hays thinks that correlation is overblown and a misconception.
"The dollar is actually almost right where it was in 1986," this veteran strategist says, characterizing the currency's moves as more of a "leveling out."
As for the weakness being seen in other commodities, in particular in crude oil, Hays credits the unexpected and enormous increase in US oil production over the past year as a more important driver.