I always hear "diversification" and "insurance against XZY" and "hedging" during big buying sprees of commodities and also gold. People find all kinds of rationalizations why they have to own a certain asset. Once it backfires the true motive more most is quickly uncovered: speculation. Nothing else. IMO, there is no good speculation or bad speculation as you outline. It's all the same. A directional gamble that can go either way.
i know what the word means. i was just wondering what you were relating it to. doesn't matter my misunderstanding.
The practice of diversication is as ancient as the wheel I would suspect. People with money have always spread their chips between real estate, bonds, stocks and gold but the latter only 5% of their portfolio because that was how conventional wisdom dictated it. Say that changes and people up that ratio to I don't know 10%. I'd say that puts in for some nice demand in gold given the relative size of it's market versus others and as such functions as one of the driving forces behind it's recent strength.
More specifically, magically discovering the benefits of diversification exactly when asset prices are rising. How much "diversification" of assets into gold would we be seeing today if Gold had dropped to $600 over the last 12 months? I tell you how much: zero. Our brain is wired to allows us to disguise speculation as diversification/insurance/hedging.
Makloda, for one who dismisses the importance of main street mania VS the over- or undervaluedness of asset classes (shoeshine boy tiping a hot tech stock) you nevertheless seem to have put some thought in the connection between asset performance and the willigness of regular people to participate or am I missing something?
The US Dollar Index is breaking lower again today, just like it did the day before and after Thanksgiving, 2006. It is propelling gold to new highs. No breather for gold today!
Timely commentary on "commodities as a long-term hedge/diversification" dated July 2008 (!), from Hussman, pulling the curtain on the diversification BS: http://hussmanfunds.com/wmc/wmc080707.htm: Never gets old
Note: It's funny how the world of finance has such a biological terminology and how the market is talked about like it had feelings. "The market has been scared", "gold needs a breather", "the market is recovering after a severe shock" ect. It's almost like we're talking about a mythological monster of some sort.