Reuters has reported that Vietnam has lifted its ban on gold imports. This move to try to stabilize their failing currency is just another in a long list of countries that will be forced to purchase gold for the same reasons, and in the process, forcing the price of gold ever higher.

For an investment to go up in price, and the investor make money, there has to be increasing demand for that investment. But demand itself is not at the root of understanding gold. To understand gold, and why it goes up and down in price, you must understand what CAUSES that demand to rise and fall. The following is from a blog called Gold vs. Paper.

There is too much confusion regarding Gold and its role in society. This confusion, of course, is not by accident in a paper currency regime. The deflation versus inflation debate, it seems to me, has become the democrat versus republican debate in my opinion. In other words, it is a distraction and unimportant to serious Gold investors. Those who thought a democrat (i.e. Obama) would fix our country's structural problems and stop the senseless warfare against innocent third world nations hopefully now understand and will learn from their naive mistake.

We are in the "confidence versus no confidence" cycle and let's just say that confidence in Wall street and government isn't exactly waxing right now. The Dow to Gold ratio, in my opinion, is a more reasonable proxy for the current secular cycle than the inflation versus deflation debate. The Dow to Gold ratio is a measure of confidence in "the system." Gold is a proxy vote of "no confidence" in the system while the Dow Jones Industrial Average is a proxy for a "confidence" vote in the system.

The simple truth is raw and not so pretty: Gold is a good investment when people lose trust in their society and its power structure. Think of the shift in trust over the past few years when it comes to bankers, Wall Street, the federal reserve (not federal, but rather a for-profit corporation given a no-bid contract to counterfeit money), and the federal government.

Gold is a bet that the "powers that be" are going to screw things up even worse than they already have/they already are. Does that really sound like a high risk bet to you? If it does, go back to watching CNBC and see what Cramer has to say.

Once you understand these things, do you really want to keep your savings in a crappy 401(k) where you get to choose between "blue chip growth," "aggressive growth," or "lifestyle 2020"?