The Collapse of Gold Isn’t Funny

As I write this (on April 16, 2013), the price of gold has dropped roughly 15% in the last week. The recent crushing collapse in gold prices should be treated as great news (unless you’re heavily invested in gold).  As the invaluable Joe Wiesenthal explains, buying gold is basically a bet on the collapse of the American or world financial system.  Gold has no intrinsic value (e.g., it produces nothing and has carrying costs) and so the main reason it is valued is as insurance against a financial collapse.  A collapse of gold prices signals that investors’ expectation of this has dropped.

While it’s easy to mock goldbugs, this gold collapse will hurt a lot of normal people.  For the past five years, whenever I turned on Fox News you would see hucksters promoting gold sales; it seems like gold retailers are basically propping up the network.  That problem is compounded by the even worse advertisements for shady wealth-management products, which in my memory have all coalesced into things called, like, “The Gold Advantage Fund”.  These products don’t so much prey on old retirees so much as take advantage of confusing times and Fox News’s apocalyptic tone to get people to fork over money based on impossible promises of huge gains and complete principal protection.  Oh wait, that is predation and these people are scum.

Finance isn’t a game and lots of innocent people get hurt in any asset price collapse.  Many in the economics blogging sphere have reacted to these developments in the gold market with mockery and glee, which seems inappropriate.  It is fun to mock people like the traders running Zero Hedge, sure.  But the people who are most easily mocked are the ones who will walk away just fine – I expect some of these Fox-News-advertised gold funds to go under in short order, but their managers will have cleaned up a pretty penny on fees.  Right now there are a lot of retirees who bought into gold as “protection”, now realizing they were actually buying an unhedged commodity trade, terrifying things that any individual investor should stay far away from.

The bottom-feeding gold hucksters advertising on Fox News are a good reminder that there is often no overlap between “illegal” and “grossly unethical”.

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