GLD, the exchange traded fund that represents gold, closed down $2 a share last night at about $150. That was still up 65% since GLD was suggested here in 2009; and 28% since suggested here ten months ago. Is it time to take profits?

The first thing to say, of course: I don’t know.

I’m holding my own GLD shares hoping they will fairly poorly – because if they do, that means inflation expectations are low and the world is not perceived to be headed for turmoil. It’s like fire insurance: if you like your house (or, in this case, your economy), you hope fire insurance will prove to have been a lousy investment.

Killing Bin Laden may have more symbolic and psychological than practical importance – but symbolism and psychology matter. Especially to markets. If enough people see this event as a marker, the beginning of the end of the worst terrorism, that’s good for the world and bad for gold.

Couple that with the newfound emphasis on taming the growth in our National Debt – which may lead to slow but fairly steady progress of the type we had in the 35 years following World War II (when high tax rates and economic growth shrank the National Debt from 121% of GDP to 30%) – and the markets may come to think we’re turning a corner toward another 35-year period of gradual financial strengthening. Again, not great for gold.

That said, I’m not sure $1,569 an ounce (or whatever the exact all-time recent high was) is the top. In January, 1980, gold topped out at $850 an ounce. Will the top of this cycle, after 31 years, be not even twice as high? Maybe, but there is certainly not yet the frenzy we had in 1980.

I hate owning gold, but am hanging on to my little insurance stash anyway. It’s hard for me to see how paper currency will not depreciate at least somewhat further in the years to come.


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