Great piece from the WSJ's Liam Denning today: Gold Trades on Luster and Bluster reminding gold bugs and the rest of the world that unlike food, water or oil, gold is not consumed, it is mostly just hoarded. Lately gold has been acting an awful lot like other risky assets riding on zero rates and speculative in-flows. Meanwhile gold parties today are about as popular as Tupperware parties in the 70's. HMMMMM.....What's that rule about investing in unpopular themes and avoiding the madness of crowds?

"Above all, phrases like peak gold should trip alarms. Investors buying into similar arguments at the height of the energy bull markets suffered big losses as recession hit and supplies turned out to be ample. And those commodities really get used up, rather than merely stored in the hope someone else pays more for them later.

Another bull argument, recalling the days of the gold standard, observes that the money supply has expanded far faster than gold reserves. Yet even if proponents could agree on the metrics to be used—narrow or broad money? Official reserves? global stocks?—the argument hasn't held over time. Gold was range-bound after the early 1980s bubble until the middle of this decade, even as U.S. money supply expanded, and has displayed little correlation with movements in broad money-supply measures. Lately, it has even disconnected from measures of observed and anticipated inflation.

The gold price's reaction to recent events like the unexpected drop in the U.S. unemployment rate and worries about Dubai and Greece is more telling. Gold has dropped at even the slightest foreshadowing of monetary-policy tightening or signs the financial system faces another bout of fragility. Its correlation with the S&P 500 has leapt from about zero in May to more than 40%. For all the talk of fundamentals and being a safe haven, gold is behaving more like the risk assets against which it is supposed to offer diversification."