Report Gold strategy in the current economy in House prices and the economy Posted April 17, 2013 My mental model of the process is essentially: * All the king world news and similar sites are the scripture. A Dante's Inferno like vision of various sinners being dipped headfirst in pools of molten hyperinflation by free market demons and crowds of wailing and penniless sheeple who didn't do much wrong except fail to heed the scriptures, crowding the outer rings of purgatory. * This particular belief system is not essentially worse than many of the more mainstream instances of the same thing (e.g. Reinhardt and Rogoff who basically have the same approach but with a less radical wording of the same message, plus some sums and a dodgy spreadsheet to convince people who are impressed by such things). * The need for these narratives exists because people need a mental model to generate actions. Not everyone is happy to simply say 'I have no idea what will happen' and restrict themselves to pure hedging strategies - this is particularly true if one is inclined to put profit next to godliness. To criticise these kind of belief systems without offering a plausible alternative as a guide for both rational and moral action is a little disingenuous and we should remember that when poking fun at goldbugs. Really, it goes deeper than this. All human reality is essentially constructed from narratives. As Gregory Bateson pointed out in "Mind And Nature", mankind is "the story telling animal". The only thing that makes the goldbug narrative compelling is that, like the Marxist narrative and the Progress narrative, it is patterned after the central narrative of our culture - the Judeo-Christian story of history-as-revelation. But it's unfair (to an extent) to pick on goldbugs, as all investment advice, whether in favour of stocks, ISAs, cash, property etc. are also based on narratives, and I'm coming to the conclusion that it is the persuasiveness of any particular narrative at any one time that drives valuations. It's interesting for example that gold fell in (fiat) value until narrative explantions started to be put forward to explain the fall. Until narratives could be supplied there was panic. Indeed, I think market panics could probably be described as "events made severe by the lack of explanatory narratives".