Fear of the unthinkable
The fear angle has to do with U.S. fiscal and monetary policies, with the argument being that high federal deficit spending combined with the Federal Reserve keeping interest rates near zero makes gold an attractive alternative to investments that don't keep up with inflation as measured by the consumer price index, or CPI, he says.
"Whenever a government offers negative real interest rates -- that's what you're earning on rates, take away the CPI number -- you have deficit spending without fiscal cutting. Gold rises in that country's currency," Holmes says.
On the flip side, if interest rates were 2% higher than the inflation rate or more, it would portend a drop in gold prices.
For example, Hyzy says gold's rise in the past has been driven by fear of the unknown and the unthinkable. The unknown was whether the U.S. dollar would weaken. The unthinkable was whether the world's major economies would suffer another near-catastrophic financial crisis.
The "love" aspect has to do with the rising demand for gold jewelry and ornaments in China, India and other emerging-market countries where gold is an important cultural symbol, Holmes says.
"50% of the world's population believes in gold … for love, romances, birthdays," he says.
India and China together account for a majority of the total worldwide demand for gold bars, coins and jewelry. In 2014, China overtook India as the world's leading consumer of gold, with both countries seeing a resurgence in gold jewelry, according to the World Gold Council, an industry market development organization based in London.
Globally, demand for gold softened a little in 2014, according to the World Gold Council, with jewelry and investment up slightly over 2013. Investors shied away, due to the previous year's surge in demand, according to a third-quarter review by the council.
But at the end of 2015, gold jewelry made up 57% of gold demand, 60% of which was from India and China, according to the World Gold Council. I
These demand pressures might be expected to attract new supply, bringing gold prices down to Earth. But Holmes says the low-hanging fruit of gold mining already has been harvested, and environmental regulations have raised the cost of exploration, extraction and shipping. "It's much more difficult to get that asset out of the ground," he says.
Speculators cause price swings
Generally, gold prices can be quite volatile. In fact, Holmes says that 70% of the time, it's a "non-event" for the price of gold to rise or fall 15% in a 12-month period. In other words, investors can expect annual price swings of that magnitude or more much of the time.
Gold stocks can experience even greater volatility than futures.
Some of that dramatic rising and falling is because of the involvement of central banks and speculative traders in the gold markets. That can mean positive or negative volatility for investors, depending on whether those banks and traders are buying or selling.
"Since the primary use of gold in an (investment) portfolio is as a hedge, it's important to think like a central banker. The more growth comes from areas of the world that have high savings, the more (the price of) gold is likely to continue to rise because those savings need to be put to work in nondollar instruments, which include gold and other hard assets," Hyzy says.
Gold as part of your portfolio
Holmes believes conservative investors should have 10% of their portfolio in gold and aggressive investors might want as much as 20% to 30% in this precious metal.
Hyzy isn't sold on that proposition. He says there's no hard evidence that individual investors own that much gold, and most people shouldn't have a big chunk of their wealth in any one company or commodity.
"You still have to understand that you shouldn't own too much of any one thing," he says.
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