Adding Perspective to the Recent Dip in the Gold Price

“Attention! Il y a une medeuse, la!” a young boy shouted yesterday as your editor dipped his toes into the deep, blue waters of the Mediterranean in Cannes.

“Ah oui,” your editor replied. “Je la vois.”

“What is it?” your editor’s son, Ethan, wanted to know.

“A jellyfish.”

“That’s lame.”

“Yeah,” his father agreed, “but it’s little and it’s probably dead.”

“Even so,” Ethan said, “I really don’t want to go in the water again now.”

“I wouldn’t worry about it,” his father replied.

“Why don’t we just fish it out?” Ethan asked.

“Fine with me. Go find a net or something.”

A few minutes later, armed with a borrowed net, the American tourists went about the task of making this sliver of the French coastline a little more swimmer-friendly.

“There it is!” Ethan exclaimed, as his father speared the net into the water and scooped up the jellyfish.

Your editor strolled over to the nearest trashcan to empty his catch. But just as he was doing so, Ethan yelled again, “Hey, there’s two more!”

Your editor returned to the water’s edge and repeated the exercise. He dipped the net into the water, just like before, and nabbed a jellyfish, just like before. But as he was lifting the net from the water, he felt a sharp, stinging sensation wash across the top of his foot.

It was jellyfish #3.

The jellyfish struck a blow for jellyfish-kind, but did not escape the net.

As your editor gazed down at his blistered, stinging foot, he thought to himself, “Hey, that’s the price of good fortune.”

It isn’t easy to get stung by a jellyfish in Cannes, especially if you are an American who lives 6,000 miles away. You have to set aside enough time and money to buy a plane ticket, pay for lodging, languish on a beach chair until you’re hot enough to dive into the sea and THEN run into a jellyfish. It just isn’t very easy to suffer that kind of adversity.

A jellyfish sting in Cannes belongs to the same genre of perverse privilege as bogeying the 18th hole at Pebble Beach, spilling Dom Perignon on your tie, backing your Mercedes Gull Wing into a shopping cart…or owning gold during a correction.

In the span of just a few trading days last week, the gold price plummeted from a high of $1,910 an ounce last Monday to a low of $1,712 three days later. The folks who never owned gold in the first place, and who have always held the precious metal in contempt, rushed to declare the “end of the gold bubble.” Many of the folks who did own gold wondered if the naysayers might be right this time.

But a few of the folks who own gold, especially those who have owned it for a while, recognized the selloff as the price of their success. In other words, the selloff was only painful if you were one of those investors who actually owned gold. And if you actually owned gold, you probably purchased it for less than $1,712 an ounce, maybe much, much less.

A $200 selloff in three days is not nothing; but it may not be that much worse than a jellyfish sting in Cannes. For perspective, $1,712 would have been an all-time record high for gold as recently as August 5! And even after the recent selloff, the gold price is up 10% over the last 30 days and 45% over the last 12 months. The S&P 500 Index, by comparison is DOWN 6% during the last 30 days and up only 15% during the last 12 months.

No one likes a jellyfish sting, or a sudden, 10% drop in the value of an investment. And most folks don’t like bogeying their last golf hole of the day, getting a stain on their tie or scratching on the bumper of their car.

But context is everything. Some adversities are worth relishing.

Eric Fry
for The Daily Reckoning