Tonight I write about my favorite two topics: Fear and Greed. many years ago, my Dad was a faithful student of Howard Ruff and a regular reader of his rag, “The Ruff Times“. I was a newly-wed and had a small infant at the time, so I figure this had to be in the 1978-1980 time frame. Several years earlier, I had graduated with an undergraduate degree in Economics. I remember that gold had just made a meteoric rise to almost $800/oz, and my Dad had missed most of that, but was now eager to get in. Howard Ruff was always sitting there on the coffee table, assuring Dad that gold would see $1000, $1200, … maybe $2000!

I had frequent disagreements (sometimes heated debates) with Dad on the wisdom of putting his entire, meager life savings into a shiny metal. I figured that if he had such an urge to buy gold, he should just buy Mom some jewelry. You see, Dad had been burned really badly in the stock market years earlier, losing everything he had invested during the 1960′s (the market “go-go” years). But the reason for this financial disaster was his purchase of penny stocks, all with never-before-or-since heard names.

So what we had here was the Fear of losing everything in the stock market, combined with the Greed of wanting to get rich quickly on a “safe” investment. And the 1980′s gold market provided that perfect storm for him, and many other Ruff followers. Needless to say, Dad never got rich (he liked buying the physical coins, which sold at a premium to the already high gold prices), or even made back his investments in his own lifetime .

Today, I watch in awe as the price of gold once again heads toward the stratosphere. Do people realize that you can’t eat it or drink it, and it won’t keep you warm at night? It is a mineral … a rock. It only has value because a lot of people say it does. I remember the very first lesson I was taught in Economics 101. It was posed as a question by the professor on the first day of class: “Why are diamonds, which are not essential to life, so expensive, while water, which you cannot live without, is nearly free?“

Since gold arrives at its price by consensus agreement on basic psychological factors (Fear and Greed), it is easy to see why its price can fluctuate wildly. It would be nice if this article on gold optimism was to prove right, but I highly doubt it.  So my warning today to the Gold Bugs is, “Be careful out there!“

A Recent History of Gold Prices