Well, I couldn't have imagined the response I got, which were mostly negative and angry. The experience made me wonder: why were so many people so upset with me for trying to explain why gold has been going down?
Gold peaked in September 2011 and the decline has accelerated recently, with the price down over 20 percent since last October. This is a fact. You would think that investors in gold would want to understand why it's falling so that they can decide whether to get out now or, if they think the reasons for the decline are wrong, buy more. So why get so upset? The answer to that has a lot to do with what makes someone a good investor. It's a lesson that everyone should learn if they are going to invest in anything.
(Read More: What the Silver Chart Is Telling You About Gold)
The reason is what behavioural finance calls cognitive dissonance. Cognitive dissonance is what you experience when you find out something that goes against your beliefs. The best example is the typical TV news interview with a murderer's mother. She always says what a good boy her son is, he would never do anything like that, he loves his mother, he loves his dog, etc. etc. This is normal. When faced with some new information that goes against our long-held beliefs, most people prefer to ignore the new information or rationalize it away rather than change their beliefs.
(Read More: Even Another Cyprus-Style Crisis Can't Save Gold)
The more time and effort people have invested in those beliefs, and the more costly it would be for them to admit that the new information is true, the greater the dissonance that they experience and the greater the need that they feel to reduce it. Reduce it not by changing their beliefs, but by ignoring or discrediting the new information.
So a mother, who's spent years and years raising her son and does love him, would naturally just refuse to believe that he's a murderer. And an investor who owns a lot of gold, subscribes to newsletters about gold, talks about gold with his friends, and has made a lot of money in gold in recent years, is likely to refute or reject any new information that says now might not be the best time to buy gold.