What does bad news really mean?

Food riots in poor countries around the world and de facto rice rationing in California by national retail chains have had a peculiar effect on me. They make me worry about gold.

The human tragedy and human propensity to hoard are worthy topics in their own right, but for myself, the relationship to things numismatic is the important point.

Events like this happened in the 1970s. They happened closer to gold tops than to good buying opportunities for the precious metals. The smart time to buy is when everything is quiet and nobody sees any reason to get into precious metals. The smart time to sell is when everybody is predicting that gold will reach the moon.

Is that why gold closed below $900 a troy ounce yesterday at $886.80?

It is never too late to make an investment. As long as there are people, gold will be bought and sold as a hedge against inflation. But that doesn’t mean markets go straight up forever. In fact, they can take a very long time to reach new highs as gold buyers in early 1980 found out.

Gold can correct and it can correct severely.

Have we reached a point of such speculative excess that gold will stage a significant retreat? Even gold bulls seem to be predicing a routine correction, but could it be more severe than that?

When I talked to Leon Hendrickson of SilverTowne on Saturday he said his smelting and refining operation was buying $3 million in gold a week.

Now large numbers by themselves don’t mean anything, but how much of this metal is being sold by people’s whose household budgets have been stretched to the breaking point by high mortgage payments, high gasoline and high food prices?

We had lines in 1980 to indicate everybody and his brother were selling. Many pundits paid no attention, but the physical selling helped swamp the markets with supply. This time perhaps technology makes this warning more subtle.

I asked Leon where the coin counters were like in 1980 and he said electronic scales are so much better and faster. They are also much quieter.

We don’t hear the clinking and clanking on the floor anymore, but that doesn’t mean significant public selling is not occurring.