The Dissociative Identity Disorder of Gold

Gold is a funny metal. Most people think of it as the most precious of metals in the world. Others think of it as much-needed metal to be used in the manufacture of products like jewelry and electronics. And, that is where gold's two personalities are at odds with each other.

As a commodity used in manufacturing, gold's price should fall as the world struggles in a recession. That's because the supply will rise as the sales of those products that use the yellow metal fall off. In essence, whenever there is less demand the price will fall -- based on the Law of Supply and Demand.

But, the other personality of gold is its intrinsic value as a precious metal. In this case, gold is much sought after as a hedge against impending economic disaster. It is considered a safe haven in times of strife. While the dollar might fall in value, gold will generally hold its value or even gain.

In the last year and a half, gold has approached the $1000 mark and then fell off of it a total of 4 times. Now, for the 5th time, gold has closed in on the $1000 mark with the current price at $995.60 a troy ounce. The recent rise has been due to the belief that the recovery from this recession has become more and more uncertain. In fact, the Chinese stock market's decline of nearly 20% in the last 3 weeks has much to do with gold's rise in price.

But, here's where gold gets sticky. At the $1000 level, the commodity buyers of gold tend to believe that gold is overpriced in the midst of a recession and due to slacking manufacturing demand. As a consequence, they start to sell off the stocks of the metal that they own. This, then, causes the price of the gold to fall markedly.

Over and over, the $1000 dollar mark has been a point of resistance for the price of gold and I would expect that it will be again and gold may fall back again to the $700's. If it does, however, break through $1000 mark, it will be because of a real nervousness about the world economy; and, that won't be good.

If you ever want to know what the world is thinking about itself (economically), just watch the price of gold.