You cannot understand gold if you think it goes up and down, that the dollar is money and therefore the measure of all things, including gold. This is a very bold statement, so let's look a little closer.

Mainstream articles often ask the question if gold is a good inflation hedge, which means: does gold go up as much as consumer prices. You know what comes next. They trot out a chart of the Consumer Price Index with the price of gold overlaid on it. And guess what. Gold fails to protect against inflation (i.e. its price does not go up with CPI). Therefore, you should buy stocks and real estate. QED.

A related error is to lump gold in with commodities such as copper (much less lumber or wheat). It is often supposed that commodities as a group should go up or down together. These can be correlated at times, but there is no law of the universe that makes it so. Every bushel of wheat, every barrel of oil, every board of lumber is produced in order to be used, consumed.

Supply and demand in the timber market, for example, can be visualized like a race between construction and forestry, with prices changing as one side and then the other gets ahead or falls behind. However, gold is produced to be held and not consumed. Virtually all of the gold produced over thousands of years is still in human hands. All of this gold is potential supply, under the right conditions.

There is simply no analogy between gold and any ordinary commodity.

Another related error is to plot the quantity of money with the price of gold. This one is not restricted just to mainstream paper bugs. Gold conspiracy theorists also use it. The price of gold does not track the dollar supply, therefore manipulation. As with commodity prices, there is no guarantee that the price of gold needs to track M0 or M2 or whatever favorite measure of the number of dollars.

Changing tacks, did anyone in Greece buy gold a month ago? If so, it surely wasn't about rising consumer prices! For those not following the story, the Greek banks were closed and Greece imposed capital controls. Anyone who left euros on deposit in a Greek bank now faces uncertainty and threat of significant loss. Those with gold don't have that worry.