Recently, I sent around a thought on the high prices of gold and stocks of companies on the Dow Jones list asking the question of risk – what does a high price of gold tell us about the future – what goes up too fast may come down very fast.
Well, as if on cue, something happened.
Last Friday, the price of gold dropped 11% and the price of silver dropped 31%.
What moved markets, apparently, was President Trump’s pick for the next chair of the Federal Reserve. The appointee has a reputation for holding firm against inflationary pressures and so giving strength to the value of the dollar. If this surmise proves prescient, then the value ratio between the dollar and gold will change in favor of the dollar and the price of gold will come down.
That’s decentralized decision-making for you – the strength and sometimes the bane of free markets.
But is not the making of price convey valuable information about what might happen in the future – providing a valuable service to all – kind of a moral force in keeping hubris at a distance?