The argument for investing in gold is different than almost anything else: there is no cash flow to be valued or sales growth to be optimistic about and (unlike other commodities) industrial demand doesn’t justify the price. The idea is that it shouldn’t lose too much value in a bull market, and then when a crisis hits you benefit from the flight to safety of overextended investors.

“In a week in which events seemed tailor-made for gold’s safe-haven interest, the gold price failed to rise; instead, it continued a two-week decline, with prices falling by 0.8%. Despite a Greek default to the IMF, a closure of the nation’s banking system, and uncertainty about a referendum on austerity, gold prices could not gain on the safe-haven bid,” write Barclays PLC (NYSE:BCS) (LON:BARC) commodities analysts Suki Cooper and Dane Davis

Gold prices depend on US economic data: Barclays

Part of the reason that gold prices haven’t benefited from all the negative headlines (and rising VIX) is that markets are generally unmoved by the prospect of a Greek exit from the eurozone because contagion seems so unlikely. But Davis and Cooper argue that the larger issue is that strong US economic data and the prospect of a fall Fed rate hike are more important, putting downward pressure on prices. They also argue that the recent end of jump in retail prices are due to falling gold prices. That makes sense but you could also argue that retail investors, worried that both the bond and stock market could be in for a sharp correction, or more attracted to the perceived safety of gold than they would be if markets were still roaring as they were back in 2013.

Gold prices aren’t based on fundamentals

But these battling perceptions are the problem with owning a lot of gold (there are diversification benefits to adding some commodities, including gold, to your portfolio). People have flocked to gold in the past when the market gets scary, and if the next rate hike turns out to be soon and the economy gets tripped up they may again. But they may not, there’s no fundamental economic value to holding gold. It’s hard to know what will spook people, and how they will react once spooked.

“If you think markets are logical and investors are objective and unemotional, you're in for a lot of surprises,” Howard Marks has said, though he was discussing oil instead of gold.

So it might be that gold prices are more sensitive to US economic data than Chinese equities or a Puerto Rico default, or it may be that gold prices are unpredictable and treating them otherwise can get you into trouble.