Gold: The Psychology of Greed and Fear

Published: October 15th 2010
in Economics » Local

Pic: WikiMedia Commons

Imagine Robinson Crusoe searching for food and water on his island. One day, while digging a hole with his shovel, Crusoe hits a solid wood. He stops using his shovel and rapidly cleans the sand around it until he finally discovers that the wood he hit was the top cover of a box that was buried in the sand. He doesn't know when, why or by whom and he doesn't really care that much.


Crusoe is very curious about the box's contents and after a short hesitation he opens it. He is shocked, he screams of joy, he dances for hours around the box, he cannot sleep at night and his mind is full with thoughts about the things he can do with the fifty gold bars he just found. The total weight of Robinson's new treasure is one thousand pounds.


Crusoe has a magical machine and he shifts himself 300 years to the future with his newly discovered treasure to downtown Toronto of October 2010. He walks with his strange early 18th Century clothes into a gold dealer shop. He sells the gold for cash, puts the $1.35 million he just got in a suitcase and walks to the nearest bank branch.


Two days after greedy Crusoe arrives in Toronto, he changes his clothes to a modern style, buys a new car, purchases a penthouse with a view of Lake Ontario and enjoys specially imported caviar and the finest red wine – what a life!!


The morning tide wakes Crusoe of his hallucinations, he is all by himself on a remote island and the year is 1719, he cannot change his clothes, there is no red wine and the only thing to carry him from one place to another are his two feet. Crusoe looks at the gold again and sees nothing but a bunch of a useless yellow metal bars.


Our lives have changed dramatically in the past 300 years. Our basic needs, such as shelter, food, health care, transportation are beyond any imaginary dreams when compared to what human beings had in the past. Instead of putting cash and golden coins in a safe, we deposit our money in our bank account, get an electronic print out of our deposit, and fully trust the bank to give us our money when we need it.


So, what is this new rush for gold? Why is it that in modern life people still feel secure when they have the yellow heavy bar in their hands? The answer is probably not a simple one but the facts are sure. Gold prices have risen rapidly in the past months. The price of one ounce is $1,373 US, as per today's trade. Since 2006 prices have gone up by over 100%, and over 25% since January 2010.


One of the major reasons, excluding greed, is probably fear. When people lose confidence with the financial system and stop trusting the banks, they are afraid that one morning all their savings will be gone or go down significantly. This is when the ancient economy emerges from its grave, and then rare and solid metals come back to life. It is not just gold, but also silver, titanium, and other rare metals.


Some analysts say, that with the current uncertainty in the markets and the fear that some world governments may collapse, gold prices may still rise and go even beyond the imaginary price of $2,000 per ounce.


If gold is up than probably the dollar is down. If silver is up than there is probably an increase in the unemployment rates, or maybe the winds of a new recession are blowing again.


As for me, I never believed in gold, but enjoyed very much the famous "Spandau Ballet" Gold song:




Always believe in your soul


You've got the power to know


You're indestructible


Always believe in, because you are




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