I know a lot of people in inland California who bought homes in 2006 for double their 2004 price for fear that prices would double again by 2008. They are now sitting on a mortgage worth double the market value of their home. Fear does strange things to peoples perceptions of value.

Fear of neverending inflation and a dollar collapse in the late seventies and early eighties brought on a similar panic which sent gold prices to more than double their current price and about 5 times their historical inflation adjusted price.

My understanding is that India’s purchase was 200 metric tons or $7.5 billion of gold. The GLD has net assets of $35 billion. India’s purchase is only about 1/5 of the value of the GLD, but it increases India’s gold reserves by more than 50%. That puts things into a bit more perspective.

I own some GLD but I bought it in August 2007 and I wouldn’t buy more today. I will probably sell half if gold gets to 1,300.

Gold has broken out yet again and is up another 1% so far today as it begins to challenge the $1,100/oz mark (according to unofficial IMF estimates, the Reserve Bank of India bought gold at $1,045/oz. With the size of the purchase (8% of annual mined production) and at that price it certainly helps establish a floor!