Any analysis of gold must have a correct premise. And terms used in that analysis must be clearly understood. For example...

"Are you pro-gold?" Just exactly what does that mean? Is it a political or moral issue? In other words, does someone's position on gold indicate ideology or lifestyle choice? Can a political liberal be pro-gold? And if someone answers the original question in the affirmative, does that mean they are anti-something else?

The answers are found in the question itself. In order to answer the question, we need to know what the person asking the question means by the term 'pro-gold'. We also need to know the context in which the question is asked. For example, lets suppose there is a referendum to legally reincorporate gold into our monetary system. Then the question may be just a simple way of determining potential support for the referendum.

But if the question is being asked by a college student who is writing a thesis, then the variables change. Purpose, meaning, and intent are all different – both for the question and the answer.

After decades of effort by governments and central banks, the focus away from gold as money has led to its characterization as an investment, a hedge, insurance, another commodity.

Certainly there is some plausible argument for calling gold a hedge, or insurance, especially given volatile conditions in our society today. But the logic leading to that classification is usually faulty.

And when gold is characterized as an investment, the incorrect assumption leads to unexpected results regardless of the logic. If the basic premise is incorrect, even the best, most technically perfect logic will not lead to results that are consistent.

If we think of gold as an investment, then it's not too hard to see why some might refer to it as a "barbarous relic". Regardless of the logic used, gold's performance when viewed as an investment is not strong enough to merit most investors and financial advisors consideration.

Of course, that does not mean they are correct in disregarding gold. In fact, it has been difficult over the past fifteen years to ignore gold. Which has led to an overabundance of faulty analysis.

Some of the erroneous conclusions from all of this faulty analysis include the following:

1) As the economy strengthens inflation will rise; hence, gold should perform well. (Inflation is a drag on productivity. Also, there is no fundamental reason to expect inflation to worsen just because the economy is growing stronger.)

2) As the economy strengthens and interest rates rise, gold will find it hard to compete since it doesn't bear interest or pay dividends. (Gold doesn't compete with anything. It is original money.)

3) Gold will benefit from deflation. (True deflation results in a stronger US dollar and a lower US dollar gold price.)

4) War in the Mid-East or anywhere else will drive gold exponentially higher. (see example below)

5) Terrorism and social unrest will continue to provide a 'floor of support' for gold prices (similar to No. 4 but still incorrect)

6) Gold is too volatile to be used as money (see below)

Sorting all of this out can be quite confusing. On numerous occasions someone will make a statement in reference to gold and its correlation to at least one other item (interest rates, war, Japanese Yen, stocks, etc). The statement 'sounds' logical, but is usually incorrect. The situation is worsened when a similar statement which contradicts it appears in another article. Sometimes even in the same newspaper and on the same day.

What complicates matters even more is that gold's "authority figures" – those who write about it, those who trade it, those who lecture about it – often cite the very same factors in their analysis of gold. Who wouldn't be confused? This leads us to a seemingly obvious question. If gold isn't an investment, what is it? And if it is not insurance or a hedge, is it just another commodity?

There is only one correct way to view gold. It is real money. And its price is affected by only one specific thing: the value of the US dollar. As to whatever effect you think any of the items mentioned above might have on gold, you must consider what is happening to the US dollar.

In late 1990, there was a good deal of speculation regarding the potential effects on gold of the impending Gulf War. There were some spurts upward in price and the anxiety increased as the target date for 'action' grew near. Almost simultaneously with the onset of bombing by US forces, gold backed off sharply, giving up its formerly accumulated price gains and actually moving lower.

Most observers describe this turnabout as somewhat of a surprise. They attribute it to the quick and decisive action and results achieved. That is a convenient explanation but not necessarily an accurate one.

What mattered most for gold was the war's impact on the value of the US dollar. Even a prolonged involvement would not necessarily have undermined the relative strength of the US dollar.

During the 1970s, the price of gold rose from $40 per ounce to $850 per ounce. Interest rates on US Treasury bonds went from very modest levels to anywhere from 15-18 percent.

Gold rose from $275 per ounce to $1900 per ounce between 1999 and 2011. And yet, all the while, interest rates continued their long-term decline to near zero.

Why such apparent conflictions? Any explanation which emphasizes a correlation between gold and interest rates is unhelpful and incorrect. The single common factor in both instances is the US dollar. Its value declined considerably over both periods even though interest rates were moving in opposite directions.

On the surface of it, some will say that the above examples confirm the validity of No. 6 above. However, exactly the opposite is true. In every instance of supposed extreme volatility in gold, the US dollar is moving in the opposite direction. It is the US dollar that is too volatile. And it is in a long-term decline that started over one hundred years ago. Gold is constant and stable.

Here is another example of faulty logic: "Gold Remains Down Despite 10% Drop In December New Home Sales"...WSJ

Where on earth is the correlation between the price of gold and new home sales?? Why should someone expect the price of gold to go up because people didn't buy as many new homes as the month before? Even if the inverse relationship between the US dollar and Gold were recognized and fully understood, the statement is just plain silly.

Another headline on the same day: "Gold Remains Under Pressure Despite 22k Rise In Weekly Jobless Claims"...WSJ Silly and illogical.

Any analysis of gold which is not based on a correct premise is "much ado about nothing".

Rather than ask "Are you pro-gold?" we might ask "Are you pro-money?"