Smart Money's Five Reasons To Like Gold

Gold took a spill last week, but that doesn't mean confidence has been impaired. Smart Money, a mainstream financial Website, has an article listing five reasons to keep hanging on. In order, they are:

1. The Federal Reserve and the government itself wouldn't mind some inflation right now.
2. Competitive devaluation of currencies has come into vogue.
3. Central banks are net buyers of the metal.
4. The Eurocrisis hasn't been solved.
5. There may be other unanticipated trouble spots out there. The world's become a precarious place.

Given how much gold's advanced, a little nervousness is healthy; so is faith, particularly for those who got in early. Someone who bought at $200 in the mid-late 1970s saw gold race up to $850 and then crater. At the nadir of the ensuing bear market in 1982, gold hit $300. That person, assuming he or she held on, was still up 50% even in the dark days of 1982. For most of the rest of the '80s, that person would have had a double or more. Even in the darker days of 2001, he or she would still have a gain.

A reasonable guess for a post-bubble collapse would be a drop of two-thirds from peak to trough. My own guess for a bubble peak is $3,000/oz. If that guess holds true, gold will collapse to $1,000 once it's all over. So, for someone who bought in when the metal was at triple digits, they would never see a loss assuming my scenario pans out.