I make a lot of predictions, usually wrong predictions, but somehow I feel a need to make them anyway. One such prediction was a few months before the end of 2011, I predicted that gold would be below $1000 by the end of the year. Now we’re a bit over a month into 2012, and gold’s actually a bit higher than it was back then, at $1723/ounce. Oh well.
However, I wasn’t wrong about one thing – it looks like the gold bubble is about done. The price has stopped increasing at a thoroughly ridiculous rate, and is now staying about level at throughly ridiculous prices.
Still, the price is almost double my prediction, which is kinda horrible. I think I made two fundamental errors:
1. I assumed that once a bubble runs out of steam, it will lead to a sharp drop in price. Here the gold bubble ran out of steam, but strangely, has been staying at the same hyper-inflated price ever since. I won’t try to explain it.
2. I tried to predict something I did not understand. I don’t get gold. I don’t get why anyone would $1723/ounce for a metal with very low strength-to-weight ratio, just because it’s slightly prettier than other metals and is rare. I don’t get why that same metal is worth $1723/ounce now when it was worth just $35/ounce in 1970, and had been fairly steady at about that level for decades. I mean, the inflation rate since 1970 has been 500% – so there’s a good argument for gold being worth almost $200/ounce now, but I don’t see anything beyond that. Frankly, I think even $200/ounce is way overpriced. In other words, I tried to predict the actions of people – gold traders – who operate by logical rules that are quite different from my own. Why should I know what they’re going to do?
This same idea probably also explains why I’m so bad at predicting what Republicans will do. It looks increasingly like my long-standing belief that Republicans cannot elect Mitt Romney is going to be proven false in a matter of months. Of course, I’m holding out until the end, but I can’t help but think that maybe Republicans just work in mysterious ways. Thump the bible all day and fear-monger about Muslim extremists, yell about how “RINOs” are failing your party, but then vote in mysterious religion guy from the North who has a quite liberal record among Republicans, and is blatantly changing his public statements to fit conservative views. Whatever. I don’t get gold, I don’t get Republicans, and I’m going to stop trying to get either of these.