The number one rule for both investing and speculation is the preservation of capital.
Where an asset is income generating, that income flow forms part of the capital preservation.
So for an income producing asset, for example if the yield is 5%, one can say that based just on the yield I will get my money back in 20yrs assuming zero asset value at the end of 20yrs.
Or some blend of this.
If the asset falls by X % then I need y years of income to recover the loss in capital.
One then needs to continuously test the validity of the yield.
But with an asset that is non-income producing, the preservation of capital is dictated solely by market pricing of the asset.
Many of the people who are speculating on the price movement of gold are doing so based on thematic factors. (eg money printing, govt deficits etc etc).
So that theme forms the base of their reason for speculation.
Yet just as the yield needs to be tested for validity.
So does the theme for acquiring a speculative position need to by tested.
And the way to test the theme is to look at market pricing.
If the theme is correct, then it should be reflected in the market pricing.
Gold pricing is not correlating anylonger with the theme. Gold is trending downwards, therefore, for now, the facts have changed.
And in the words of Lord Keyne, when the facts change I change, what do you do sir?
The other point I would like to make with asset pricing:
Asset price increases are dependent on buyers. For an asset price to increase there needs to be an increase in the pool of buying support.
For asset prices to decrease there just needs to be a fall in buying support.