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Gold, and only gold, will be our salvation when the value of companies, banks, countries and even money itself melts away. Gold, not shifting currencies, is the foundation of wealth and security. Gold is back, for good.
This is the song of the “gold bugs” – the fervent fans of the precious metal who have clung to its investment value for three generations and now glow in the reflected lustre of a record price approaching $2,000 for just one ounce.
Monday will mark the 40th anniversary of the United States’ abandonment of the gold standard. But gold bugs kept the faith — even when prices stayed under $500 for nearly 25 years after their 1981 peak. Their passion derided, dismissed as hopelessly out dated doomsayers, their love for the metal seemed irrational.
The gold bug label itself goes back to master of the supernatural Edgar Allen Poe and his story of that name, a tale of golden beetle whose bite sends the hero to a chest of gold and jewels.
It reappeared as one of the first campaign buttons — a brass bug sported by supporters of William McKinley in the bitter U.S. presidential election of 1896. McKinley, the first presidential candidate to barnstorm across the nation, backed the gold standard against his Democratic opponent’s proposal that it should be joined by silver in a fixed ratio. Loser William Bryan slipped into history but bimetallism lived on for a little in the think tanks of the day.
Fast forward and the financial crisis of 2008 has made gold the darling of investors from hedge funds to taxi drivers, and sparked a near-doubling of prices.
“Gold has been rising against all national currencies, and that’s significant,” James Turk, founder of bullion dealer Goldmoney, said. “When there are problems with a national currency… people begin to worry about the value of their money, whether they’re going to lose purchasing power because of inflation or other problems. As a consequence, they look for safe havens.”
He was speaking as a true gold bug — not in the dark days after Lehman Brothers’ demise in 2008, nor in the depths of last year’s euro zone debt crisis, nor after Standard & Poor’s recent downgrade of the United States’ top-notch credit rating. Turk’s view came in a BusinessWeek interview he gave in 2005, well in advance of the current financial crisis.
“My long-standing forecast, made in a Barron’s interview in Oct. 2003, is that $8,000 per ounce will be reached sometime between 2013-2015,” he told Reuters this week.
“I’ve stayed with that forecast over the years and see no reason to change it.”
The world’s current financial woes are only going to get worse if current policies continue, he believes, meaning the rally in gold prices is unlikely to stop here.
“Politicians and central bankers are making decisions that debase national currencies, and the resulting bad monetary policies they are following are causing the gold price to rise,” he said.
Gold’s latest push to record highs has gone hand-in-hand with a plunge in Wall Street stocks to their lowest in nearly a year, while the dollar is languishing near multi-year lows.
Long-term gold bull David Beahm, vice president of marketing and economic research at New Orleans bullion dealer Blanchard and Co., says worries over the stability of the stock markets will be a key driver of higher gold prices.
“The best investment right now is gold,” he said. “By diversifying one’s portfolio with a negatively-correlated gold, investors can protect themselves from deep plunges in the equity market.”
“There is no news in the market today or over the coming few months that is likely to stop the current gold bull market, as the fundamentals are firmly in place for gold to continue its rise,” he says.
Traditional investment commentators have dismissed gold — which, with no “intrinsic” value of its own, is only really as valuable as a buyer thinks it is — as a classic bubble.
For the rest of this article, please go to the National Post/Financial Post website: http://business.financialpost.com/2011/08/11/gold-bugs-get-their-day/