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telling stories

Gold seems to have lost its narrative.

telling stories
Lost in a good story.

Whether you are talking about commodities, stocks, bonds or anything else you care to invest in, their prices are impacted by narrative. And by narrative, I mean the stories people tell.

For example, without the bold, upbeat and optimistic narratives coming out of the world’s central banks right now, the state of the global economy would be in much worse shape than it already is.

The power of narrative trickles all the way down to the level of individual companies. An upbeat, confident statement by the CEO of a publicly-traded company can result in an uptick in share prices.

And gold, of course, has had its own narratives.

The trouble is, those narratives seem to have lost their appeal recently. Or maybe people just don’t believe in them anymore.

If that’s the case, it would explain why the price of gold bullion has been wondering up and down within the same range for the last two years.

What are these gold narratives?

Here are a few:

Gold price manipulation!

Is the price of gold being manipulated? I have no idea. Given the moral turpitude of most banks, it probably is. But the problem with this narrative is that it has been going on for ever, and ever, and ever. In other words, it has become a long, stale story. Without something interesting happening within the framework of this story soon, people will lose interest altogether.

The Fed’s money printing frenzy will crash the dollar!

And, of course, once the dollar crashes, the price of gold will surge. An excellent narrative…if only it showed some signs of life.

Since 2008 the Fed has printed trillions of new dollars. Our narrative tells us that this should result in immediate inflation and the rise in value of gold. The trouble is, this hasn’t happened. Another narrative on the rocks.

Wall Street crashed and the money will go to gold!

It’s true that in the year or two following the crash of 2008, the price of gold did go up. But not for long. As soon as investors realized that the stock market was rising again, and not falling through the floor, the price of gold went back down again.

Geopolitical turmoil will drive investors to buy gold!

Another great narrative idea. It makes sense. And goodness know, we have seen a great deal of geopolitical turmoil over the last decade. And in such times of uncertainty, and with everyone moving money out of troubled regions in the world…that money is meant to be pushing the value of gold to the moon!

The trouble is, most of that capital outflow isn’t going into gold, it’s flowing into the U.S. stock market which, in spite of the “death of America” narrative, is going gangbusters.

When all is said and done, the price of gold probably should be higher. And, in time, I’m confident it will go higher.

But right now we are looking at a battle of narratives. And the Wall Street narrative is winning hands down. They’re telling a much, much better story.

Gold bugs will either have to wait for that narrative to fail, or for gold to come up with a new and much more appealing narrative of its own.

But for now, the gold story is boring, and few people feel tempted to buy.

About the author: DH Kenrick is a student of world economics and a committed gold enthusiast. 

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