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BULL markets are supposed to make investors feel good. But the latest surge in the price of gold has an aura of dread about it.
It is nearing a lofty $US850 ($949) an ounce, a height not seen for 28 years.
That has triggered some primal fears on Wall Street. If investors are turning back to one of the most ancient forms of money, one implication is that they are losing faith in modern finance.
Indeed, the higher gold goes, Bill Roberts, 55, of Westchester, California, said he could not help but see a deepening message of doom.
The dollar is sinking, banks are reeling from mortgage defaults and the stockmarket is tumbling anew, with the Dow Jones index falling 552 points last week.
With that backdrop, Mr Roberts said he was happy that he had most of his investment portfolio in shares of gold-mining firms. "I see gold as one of the things that can save a small investor like me," said Mr Roberts, a retired lawyer. He predicted the metal's price could jump higher than $US2000 an ounce.
However, many veteran precious-metal investors prefer not to play the apocalyptic panic card to promote gold these days.
"It brings up the 'gold-bug' image: old guys in threadbare suits, with wild tufts of hair, jingling krugerrands in their pockets," said Thomas Winmill, who manages the New York Midas Funds, which owns mining stocks.
Mr. Winmill wants the metal to be viewed simply as an element of a diversified investment portfolio - not a haven for the end times. Even so, gold's recent rally to 1980s levels is bringing back some awful memories of that era: galloping inflation, double-digit interest rates, a collapsing dollar and despair about America's future.
In New York on Friday gold closed at $US832.50 an ounce, down $US2.70 for the day but up $US27 for the week. The price is closing in on the record high of $US850 set in January 1980.
Adjusted for inflation, the metal is far from the old peak. It would have to rise to about $US2200 in today's dollars to match it, said the World Gold Council, a mining-industry-funded group.
Gold has been in a mostly steady up-trend since 2000, when it sold for about $US275 an ounce at year's end. Its |
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advance has coincided with a boom in commodity prices in general, as demand for raw materials has soared in burgeoning economies such as China and India. More than two-thirds of gold demand worldwide is for jewellery.
Many mainstream investors paid little mind to gold in the past few years, as the stockmarket rallied and rising home prices underpinned consumers' net worth. But in the past three months the metal's hot streak has stood out against a deteriorating outlook for the US economy. Record oil prices are triggering fear of higher inflation. And the dollar's value is plunging - a casualty, some experts say, of global investors' dimming view of the economic prospects of the United States amid a housing bust.
So gold, experts say, is back in the role it has played for thousands of years: a store of value, a way to preserve wealth and a hedge against financial calamity.
But as gold rockets, investors who were there for the metal's last bull market are reminded how fast it was over once the price began to rise steeply.
Gold's spike above $US800 lasted all of a couple of days in January 1980. By the end of that year the price was less than $US600. Then began 20 years of mostly falling prices. By mid-1999 an ounce of gold went for about $US250. What quashed the last gold bull market was action by Federal Reserve in 1979 to dramatically raise interest rates, dealing a fatal blow to the inflation mentality of that era. Once the US economy began to recover in the early 1980s, stock and bond markets boomed and investors put their money elsewhere. That continued in the 1990s. And the world's central banks added to the downward pressure on gold by selling off some of their reserves. Gold became a bad joke.
The long bear market left many longtime fans of the metal chastened, said George Milling-Stanley, the chief analyst at the World Gold Council in New York.
Winmill said any number of forces could trigger a plunge in gold's price this time around, including a pullback in oil prices, a sharp rise in interest rates or a turnaround in the dollar's slide.
Larry Heim, who has been running a gold investment-advisory business from Portland, Oregon, since the early 1970s, said his client base had doubled in the past year.
But Mr Heim, who predicts that gold will reach about $US3400, said he did not tell his investors that the metal's bull market would last indefinitely.
"It's not the right thing to own forever. It will be the right thing to own for the next few years though." |
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