One of the themes I've raised here but goldbugs repeatedly...

One of the themes I've raised here but goldbugs repeatedly ignore is investment psychology, they'll talk until the cows come home about every other trivial thing, but they've got their heads in the sand, because when investor psychology cracks, look out below.

Definitions:

Psychological Feedback Loop:

One person's gains and excitement convince another person to attempt person No 1's investment, which in turn convinces another person and so on. (How many posts have I seen here about speculators convincing their family and friends to 'invest' in gold? Heaps)

Information Cascade:

Crowds develop and grow during a communication process called an information cascade. During an information cascade the print and electronic media focus public attention on recent dramatic movements in markets and the associated profits and losses of investors. This in turn encourages people to put aside their natural scepticism and adopt the investment theme the media are highlighting. As the investment crowd thus grows larger, it pushes the market even further away from fair value and toward a substantial valuation mistake.

Of course these both work in reverse as well and as the information cascade builds on the way down a trickle of disillusioned speculators will become a flood.

Is this is what's happening with GLD? Could well be, you won't want to be the last one out just in case things start going wrong, and whether it's paper gold or the real thing they're both going to take a bath.

It'll only need some minor media attention to start a panic if there's any hint of impropriety or danger.