One of my greatest life lessons came from a punch to the head.
Thirty years ago, as a young Marine, I entered a boxing match (we called them smokers back then). It was my first and last. It ended in about 2 seconds and I never even took a swing. My opponent, also a Marine, hit me one time and it profoundly changed my understanding of many things. I never saw his move; I was looking him right in the eye when he hit me. It was the most jarring thing I had ever experienced. My entire body instantly felt as though everything in it was out of place: teeth, internal organs, everything.
I don't know why, but I didn't go down. My body bent at the knees and I keeled over, but I came right back up to the same stance -- except my arms had dropped to my sides. This was not a conscious decision; it's just what my body did. (I'm reminded of the television commercial for a children's toy, "Weebles wobble but they don't fall down.") My opponent didn't take another swing as we stared at each other. I was vaguely aware of sounds coming from the crowd as I turned around and walked out of the ring. My body was operating independently of my brain.
The classic response to this kind of shock is fight or flight. But there is another response I learned that day that I can only describe as "nothing." My instinctual response was that I wanted my mommy. I don't offer this jokingly (although whenever I tell this story, it elicits hilarious laughter).
This afternoon, gold bounced off its recent low of about $1325 finished near $1370. Although I have written in the past few months about the prospect of gold declining dramatically if it broke $1500, I assumed that many were aware of the risk. But the shock expressed by many traders reveals that they were caught off guard by the recent moves, as I was by my opponent's punch.
Setting aside the technical reasons for the price to move even lower (keeping with the observations I wrote about previously), traders and investors now have to deal with their shock -- like a blow to the head. Everything they thought they understood about gold and how it is priced, right or wrong, is now suspect. It's implausible to expect that investors or traders will quickly regain the confidence they had in their convictions and I suspect they may exit the ring after this shock to the system, just as I did those many years ago.
The gold bull market and the underlying rationales in place between 2000 and 2011 (and interrupted briefly by the financial crisis of 2008-09) is no more. I continue to believe that the price will decline (in keeping with the technical reasons I discussed earlier) and, as the process unfolds, new traders and investors with new ideas and understandings will replace the current crop.