Gold Skeptic Expects Price To Fall

Most of his article is devoted to evaluating the case for gold shooting up and then debunking it, but David Schwartz also says there are reasons to expect gold to decline from here on in. In the short term, according to Schwartz, gold is reacting badly to the events of the day and has shown a pattern of lower highs and lower lows. His long-term case is prefaced by the Efficient Market Hypothesis in disguise:

Gold was once mainly accumulated by governments or individuals in times of crisis. But now it has become an investment like shares or corporate bonds. Gold prices spike up and down faster than in the past.

Most investment categories adjust to fresh information. Gold is no different. Today's price reflects fears about Greece, inflation, quantitative easing and other variables. But gold bulls believe they have insights not yet reflected in the price.

There are two conclusions an objective person can reach. Bulls are either more perceptive than investors in other asset classes, or their views are fanciful....

In other words, enthusiastic gold bulls think they're smarter than the market. From a long-term technical standpoint, gold is way above its long-term trendline - unsustainably above, avers Schwartz.


The core of his argument can be itself debunked in a theoretical (or perhaps abstruse) manner. All investors thinks they're smarter than the market. They wouldn't have invested otherwise, unless they invest solely for a stable income without hope of a capital gain. Everyone who makes an investment believes that the market has either undervalued it (bulls) or overvalued it (bears.) This is more particularly true for speculation, whose very rationale is to take advantage of market mispricing. That being said, the bull case for gold can't be impugned by saying that gold bulls think they're smarter than the market. It has to be shown that they're wrong - which Schwartz does attempt to do with a market technician's answer to relative-value analysis.

To be less theoretical, Schwartz is yet another skeptic who sees a large overvaluation gap between what gold is and what he thinks it should be. His point about gold's downtrend seems to have been obviated by recent events. Gold is staying stubbornly high, still. He may be right, but there's little sign of the gold market co-operating his way either.