You Asked Why Gold Is Tanking - I Told You To Expect It. Here's Why...

Some of you have asked why gold has been tanking these last couple of weeks. I thought I had cleared that up previously, but I guess I need to get a bit deeper into the explanation.

Investors invest according to their faith in government, the economy etc. When they lack faith & confidence, they sell stocks and buy gold, which increases the price of gold. When investors regain faith and confidence, they sell their gold and buy stocks.

Over the last two years gold rocketed upward because investors lost faith in the government and its ability to control the deficit, debt and economy.

In November, voters placed control of the House of Representatives into the hands of the GOP and Tea Partiers. Investors understood that the new House has promised to reduce the deficit and debt, and strengthen the economy. And gold stabilized somewhat, as investors waited to see if the government would actually start working to make things better.

In December, the GOP controlled House forced the Senate and the President to moderate. Investors saw this as a positive sign, but were still unsure just how much headway would be made. And gold began stumbling as investors raised their hopes of better times ahead.

Over the last couple of weeks, the consensus is that the GOP will actually push to make things better for business and the economy. The message got through not so much because of the GOP promises, but because the White House has become more centrist - less liberal - because of the GOP hold on the House. This signals to investors that the GOP stands to actually make some progress.

All in all, investors are regaining faith and confidence. And the stock market has jumped as gold slumped.

And that is why gold is losing some of its luster.

But don't be too quick to sell - if the government does not follow through on its promises, investors will again look to gold. And then there are those who, upon seeing gold prices relatively low, will decide to buy in the hopes it will only go up again. And both of those can trigger a new "buying" spree.

But for now, I'm taking a 'wait and see" attitude. I reaped my profits and cashed in on them (though I still own some gold). If the GOP stumbles and investors again lose faith, I will then dump those profits back into gold for the next wild ride.

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