| All That Glitters |
10 February 2003
|
Rising Prices Bring Out Gold Bugs
The recent run up in the price of gold has brought out the Gold Bugs on Wall Street. Their fascination with the yellow metal is as close to a cult as the investment world will ever see. They range from the rather responsible gold traders and coin collectors to the borderline crazy survivalists, but all are convinced that, despite painful experience to the contrary, the gold comeback is for real.
The sales pitch is sometimes a sound one; a diversified portfolio should include commodities as well as equity and debt instruments and real estate, and gold fill the bill there as a highly liquid and universally recognized form of wealth. It acts as a hedge against inflation and holds its value in times of political uncertainty.
However, when the enthusiasm kicks in, the claims become silly. "The dollars in your wallet are just paper, not real money." Or "gold is the only constitutional form of currency." Best of all, "When the end comes, only gold will be worth anything." What about canned goods?
Remember, gold is trading at about 40% of its 1970s peak even now -- in dollars unadjusted for inflation. The Lakota medicine man Black Elk described gold as the yellow metal that makes white men crazy because of the things they will do to obtain it. He was not entirely wrong. Even now, people are buying it at $360 an ounce thinking that it will go up. When the Iraq situation is resolved, and demand drops as a result, it will be proof that they were crazy.