Lack of trust in strength of dollar has boosted interest in the metal, analysts say
The Washington Post
The price of gold has been hanging near its historic highs, selling around $1,000 per ounce. In times of crisis - the terrorist attacks of Sept. 11, 2001, the collapse of Bear Stearns in spring 2008 - gold has spiked as fearful investors grabbed for something they could hold onto.
But that's not the case today. The United States is technically out of its Great Recession, Federal Reserve Chairman Ben Bernanke said recently. New jobless claims unexpectedly fell last week. The stock markets are riding a 50 percent rally since March.
And yet, gold keeps going up.
That means a growing number of investors, traders and, most troublingly, foreign governments don't believe in the strength of the U.S. dollar, analysts warn. People buy gold when there's fear.
"It's not the fear of an event of some sort," such as a terrorist attack, said Peter Boockvar, equity strategist at Miller Tabak. "It's the fear that the piece of paper in your pocket you call money will devalue over time."
To stave off a liquidity crisis last year, Bernanke's Fed turned on the money spigot, flooding the system - and world - with dollars.
In the short term, that helped avert a second Great Depression.
But in the long term, with each new dollar introduced into the system, each dollar you hold becomes worth less. That's more than just inflation, which we think of as simply rising prices. That's debasement of not only our currency, but the globe's reserve currency.
And that makes countries such as China - which holds the greatest percentage of U.S. debt - very nervous.
"It amazes me that any self-respecting central banker is not alarmed that gold is over $1,000 and the dollar is trading at all-time record lows," Boockvar said.
Let's back up here for a minute and consider gold itself. It's a complicated metal, and people buy it for a lot of reasons that have nothing to do with what it's worth.
Gold is a commodity, just like soybeans or wheat. But soybeans have no romance, no feeling of permanence, no surprising heft when you lift them. Spanish conquistadors did not purse the New World's soy. There was never a James Bond villain called Wheatfinger. Gold is freighted with more meaning, really, than value.
People who want something to pass down to their grandchildren, for instance, buy gold coins.
People who want to diversify their investments buy gold.
People who fear inflation buy gold as a hedge.
But when foreign nations that hold billions of dollars in U.S. debt start buying gold because they fear the value of the dollar will go down, that's when the rising price of gold becomes more than a novelty.
The massive economies of China and India, as well as several emerging economies, are increasingly hoarding gold, said Michael Dudas, gold analyst at Jefferies Asset Management.
The argument shared by China and by other investors who have been lending money to the United States during this crisis is simple, Dudas said: "They're looking at us and saying, 'If you keep printing too much money, what you owe me is not worth as much.'"
