Originally posted at forexfactory on January 23, 2011
The whole argument that gold is going higher just because it is not near it’s inflation adjusted value is ridiculous. People like to make false assumptions that just because the inflation adjusted value from 1970 should be $5,000 or whatever, they believe that a financial instrument must somehow be worth that much, or be valued at that much. They make false assumptions that somehow a financial instrument be it gold or w/e must take into account some inflation reading in determining its price appreciation. It is one of the many fallacies that perpetuates into the future.
The only time that argument for price going up or down is worth anything is if it generates order flow, sufficient aggressive order flow to move prices.
If the market participants who are going to be buying truckloads of gold don’t care about what inflation adjusted value is, and thus don’t buy based off that, and don’t generate order flow, then it is meaningless.
I am sure there are some people buying gold because they believe the inflation adjusted value should be $5,000. The only problem is they are not currently aggressive enough or large enough to stop prices from sliding, and as such are currently wrong.