[We've been seeing the sights in Williamsburg,
Virginia for the last few days (see Road Trip! for
more details) and, since we've been listening to Ron Chernow's
massive Washington,
A Life about our first president, this visit has a special appeal. Of
course, none of this has anything to do with the changing attitudes about
gold as an investment as expressed in this item that originally appeared here
way back on October
2nd, 2005 when the metal was trading at about $470 an ounce, still
waiting for Ben Bernanke to be nominated for Fed chief.]
ooo
There’s a nice article
about gold by Tom Petruno in this morning’s
L.A. Times.
This is the first we’ve heard the phrase
“Gold/Greenspan Convergence”. With all the talk about new 18 year
highs for gold and the end of Fed Chairman Alan Greenspan’s 18 year
term coming near, we are disappointed in ourselves for not coming up with it
first.
Nice work Tom!
This is a very well-reasoned story that includes a
brief, yet seemingly still obligatory segment about “gold bugs as
tin-foil hat wearing lunatics”, this time making reference to
survivalists and shotguns. In what is surely a sign of things to come, the
article goes on to do a fine job of debunking this perception of gold,
casting the yellow metal in a much more serious light, citing trends in
recent mutual fund investment flows.
Look for more articles like this in the future, as
more and more people look at gold in a much different way, given current
world events. Here are some excerpts:
The last time an ounce of gold cost $470, Alan
Greenspan was in his first year as chairman of the Federal Reserve.
Seventeen years later, Greenspan is on the verge of
retiring — and the metal finally is back to its late-1980s price level,
after a long, long bear market.
The gold/Greenspan convergence is raising suspicions
on Wall Street. Some believe the metal’s revival must be saying
something about the economy the Fed chief is leaving to his as-yet unnamed
successor.
On calamities
and shotguns:
Indeed, any kind of economic calamity that would
make people question the viability of national currencies, particularly the
dollar, would most likely be great for gold, at least initially.
To go too far down that road, however, is to enter
the realm of the survivalists and others who believe the end of the world as
we know it is imminent. If that day were to come, let’s face it,
you’d probably be smarter to own shotguns than gold bullion.
Jim Melcher, president of money management firm Balestra Capital in New York, owns gold and is no fan of
U.S. markets. But he also says he isn’t planning for Armageddon.
Melcher views gold in the same light as foreign
currencies and foreign stocks: a way to diversify against the risk that the
U.S. is overstretched financially because of its massive trade and budget
deficits and will increasingly struggle to compete with the rest of the
world.
“This is no longer a country in a growth
phase,” he says. “You’ve got to invest where there’s
growth.”
That’s harsh, and many trillions of dollars of
investment in the U.S. say Melcher’s wrong.
Even so, consider what the average U.S. mutual fund
investor has been doing: Americans invested nearly twice as much in foreign
stock funds in the first half of this year as in domestic stock funds,
according to the Investment Company Institute.
On portfolio diversification:
There may be an undercurrent of fear in
investors’ gold purchases, but it may be less a fear of catastrophe
than a recognition that the global economic and market landscapes are
changing, and the outcome is uncertain.
The metal was a terrible investment in the 1990s as
inflation dwindled and financial assets roared. Now, there are enough
questions about inflation and the outlook for financial assets to at least
make gold a contender as investors think about how to divide their portfolio
pie.
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