I always have found speculators in gold to be a strange lot. Indeed, they share with religious fanatics a profound desire for the worst. The religious extremists believe that redemption is only possible after the Apocalypse, and they have the audacity to believe that only they will survive and flourish in the “paradise” to come. I hope they are not holding their collective breaths.

The gold bugs also eagerly pray for all types of bad news – hyperinflation, economic ad financial collapse, political and military turmoil, etc. The worse the news, especially the economic and financial news, and especially for the U.S., the more they expect gold prices to rise.

Wouldn’t it be ironic if the religious fanatics turned out to be right and the gold investors were among the mass of evildoers? So even if the price of gold rose to astronomic levels just prior to the end, the people who amassed the hordes of gold would perish and never get to enjoy their wealth. (I can see a movie here: Apocalypse 2: Fanatics vs. the gold crowd.)

Jim Rogers, a renowned investment guru and major gold bug, has predicted that the price of gold likely will reach $2,000 per ounce within the next decade. He might prove to be right, for no other reason than enough people believing this will happen and investing to bring about this result – self-fulfilling expectations, the root of all bubbles. If he does turn out to be right, this would imply an average annual rate of return from investing in gold today of about 7%. This in turn implies an average expected annual rate of inflation during the decade of around 5%.

If the average annual inflation rate turns out to be much lower, say 2%, because the major central banks do not allow hyperinflation to develop, then the price of gold will not reach $2,000, except for the possibility of self-fulfilling expectations. But the price will fall sharply from that level in the absence of bad news.

Now where does the $2,000 target originate? On the one hand, it’s the next round number after $1,000. But good old Jim has a better answer. Gold’s high of $850 in 1980 adjusted for inflation would be $2,300 per ounce today.

Why choose the 1980 high as the starting point? Choosing any other starting point and adjusting for inflation most likely produces a price below the current market price – not what a gold bug wants to hear.

But more importantly, Rogers appears to be suggesting that the return on gold should equal the average annual rate of inflation. If so, investors can do much better, and with less risk, investing in real return government bonds. Rogers’ response to my “naive” recommendation is that the major governments are going to be bankrupt, so avoid their debt like the plague. But surely there would be some governments whose debt would not flame out – China for example. So why not invest in these bonds? Because the gold fanatics only believe in gold.

Personally, if I am going to gamble, I would rather take my chances with stock options and credit default swaps. I just find it difficult and repugnant to invest in a commodity where I only hope for bad news.