A human analogy used by leading gold dealer Ross Norman to explain the psychology behind the gold boom is the difficulty in rebuilding trust after marital separation caused by one spouse being unfaithful.
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“Imagine you are married,” wrote Norman from London in the latest note published on his MetalsDaily.com website.
“Your partner is unfaithful, but later repents. When do you start to trust him again?”
“That is the dilemma facing asset allocators today. They feel betrayed by the current system, by declining confidence in dollar assets, mounting debt and a lack of political courage to face reality.”
Norman himself does not tip the gold price; he’s been around too long to fall into that trap.
But he does write with great authority about the signal sent by gold, which fulfills its timeless role not just as an alternative asset or portfolio diversifier, but as a last resort, something of real value that is not someone else’s promise to pay for.
“Gold’s rise above $5,000/oz reflects a deep malaise in global finance that is not yet reflected in stock valuations,” Norman wrote.
Systemic trust collapses
‘It’s not just about geopolitical tensions or uncertainty; it involves a fundamental collapse of confidence in the system itself.
“The price of gold is essentially not just a market indicator. It is a voting machine. The ticker may jump on news of a political kidnapping, remote uprisings or threats over Arctic resources, but the underlying story remains the same.
“Gold is recalibrating to a world where trust is eroding and debt is feeding itself, and these two dynamics are obviously closely linked.”
It could be a long way down from peak gold.
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Norman looked for signs that the gold price was close to a peak, but could find none.
Even the oldest maxim about taxi drivers and bellboys handing out stock quotes was put to the test by telling an anecdote about comments in his village pub from locals and complete strangers firing questions at him and a fellow gold dealer about the price of gold.
“The funny thing is that the moment people start telling us where they think the market is going, that’s usually the clearest sign that the market is about to peak,” he wrote.
“But for now, the barometer has not fallen, not yet.”
A key concern for the financial sector is the continued rise in debt levels, which is not necessarily a bad thing, he wrote, but poses a real danger if it becomes uncontrolled and self-perpetuating and there is no longer any political will to come out of the plunge.
“In the liberal West we routinely vote out leaders who propose cuts, we refuse to take our medicine, and the East knows it,” Norman wrote.
Debt junkies
“We have become junkies addicted to the latest fiscal stimulus.
“So who would buy those charming IOUs (I owe you) that the West continues to issue as government bonds and treasuries to perpetuate our habit of living beyond our means.”
Norman then asked what could end the gold rally, using the loss of trust in marriage as a comparison as economic alliances and assumptions are questioned.
Viewed in this way, he wrote, gold becomes the economic equivalent of the dating apps Hinge and Tinder, representing a search for an alternative when the status quo no longer seems worth maintaining.
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