You Know Things Are Bad When Gold is Hot

It's crisis time again and that means boom time for gold! In December, an ounce of gold was selling for about $800. By the third week in February, it was trading at about $1,000. Is the eternal hedge against inflation really worth it's weight in, well, gold?

Economist.com today reports that a rise in demand for gold as an investment lies behind the gold surge. "Flows into exchange-traded funds, which buy and store gold for their shareholders, rose from 105 tonnes in January to 208 tonnes in the first three weeks of February, according to Suki Cooper at Barclays Capital. At that rate, inflows will soon surpass the total of 322 tonnes for the whole of 2008!

Why is gold so hot?


Fear. "When supposedly safe savings vehicles, such as bank deposits, look shaky and offer scant returns, gold has greater appeal as an alternative store of wealth," explains the Economist. "It also looks like an attractive each-way bet. If drastic cuts in interest rates work too well, that will fuel inflation. If they do not work, prices of assets, such as stocks and houses, will sink further." As one gold expert puts it, “Gold is something you buy if you have something to lose."

How high can gold go? Some think it could reach $2,300 an ounce, the same as January, 1980. The thing about gold is that there's a limited supply of it and lots of potential buyers—"ideal conditions for a bubble," says Stephen Jen at Morgan Stanley. So get out there and buy some gold.

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