That's precisely what happened in late 2008, when the collapse of Lehman Bros. – and the missed opportunity to let every other over-leveraged investment fraud go bust as well – drove equities, commodities and gold sharply lower.

By mid-October 2008, gold had re-traced the entire surge that started with Bear Stearns' hedge-fund failures of mid-2007, running to the peak above $1000 per ounce when Bear Stearns itself failed into the loving embrace of J.P.Morgan the following March.

Here again in 2011-2012, the crisis proved good for gold at first, but the whole move has been unwound as global credit deflation sucked the air out of gold futures and options, and wipe-out losses in other assets forced even true believers to quit their positions.

Gold prices have the potential to recover, reckons a UBS analyst on Bloomberg TV. No doubt he's right. But how strong is gold's immediate potential given the overwhelming bullishness of every other tomfool able to voice his opinion in public.

"Last time we talked, last September or October, you asked what I thought, and I was bullish at $1800," said one MBA with the certainty of a 12-year old to Business Insider a week ago.

"Now it's $1660, and I'm still bullish. I'm more bullish than ever."

Good grief. Just think how bullish he must be now gold has sunk another $120.

"When all the experts and forecasts agree, something else is going to happen," says David Rosenberg, previously chief economist at Merrill Lynch, now chief economist and investment strategist at Gluskin Sheff and – ummm – an expert by any measure. But what happens when all the fools agree with the experts? It most likely ain't pretty.

Put another way, gold has been getting "a thorough, undeserved smacking," as our friend Ross Norman at Sharps Pixley wrote last week. But what's so undeserved about it?

Gold has risen for 11 years straight, gaining through boom and bust and boom and bust again, beating all other tradable assets (now including silver) hands down and even being recognized by 1-in-4 Americans as the best place to keep your money (formerly 1-in-3, but who's counting besides us?).

The best place up until now, that is. Survey monkeys really don't know the best place from here. No one does. Hence the fun we're all having meantime.

Longer-term, of course, gold's low of Oct. 2008 proved a stand-out buying opportunity. Difference was that physical gold demand – at the lows of the 33% price drop top-to-bottom in 2008 – was massive. Lines formed outside coin shops, gold ETF holdings surged, BullionVault users couldn't pile the stuff into Swiss storage fast enough at just $4 per month, and financial journalists worldwide realized why people buy gold in crisis.

Today, in contrast, demand is fair but unspectacular. Hell, the financial press in Spain is telling people "gold is a risky asset" that has "lost its luster"! Maybe the crisis isn't clear enough. Maybe those people who would buy gold in a crisis already did, four years ago if not last summer, when the Eurozone crisis ran into the US debt downgrade ran into the torching of England's towns and city centers.

Or maybe things have to get very much worse again to revive the lesson of 2007-2009. The lesson that banks do go bankrupt. Debt investments do evaporate. Central banks will stop at nothing to stem a credit deflation.

Adrian Ash

Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

-- Posted Wednesday, 16 May 2012 | Digg This Article