THEY say the beauty of gold is that it loves bad news. And reliably, the gold price has responded by going through the roof, smashing through record highs practically every week. A decade ago the price of an ounce of gold could buy you a flight to Istanbul; today it could land you in Sydney. An ounce goes much further these days.
But one doesn’t have to go far before stumbling across the gold bears. They were briefly triumphant yesterday after Osama bin Laden’s death was announced, with the price falling – but it then rebounded, as we explain on page 2. Willem Buiter, chief economist of Citigroup, has called gold the subject of “the longest-lasting bubble in human history,” insisting he would not put a penny into anything that holds no intrinsic value – he argues that its positive value is based purely on a set of self-confirming beliefs.
London’s trading folk are less ideological. IG Index’s David Jones says: “It doesn’t look like the gold rally is going to end any time soon. It would take a move back through at least $1,300.” Kathleen Brooks of Forex.com says that traders have the green light to buy for as long as Ben Bernanke’s hands aren’t on the monetary taps. Contracts for difference traders might want to go long.
There are a couple of high gold price facts, however, that could leave you a little less comfortable. Bears might be unsettled by the idea that history isn’t on their side. When adjusted for inflation, the gold price still hasn’t reached its 1980s peak. The bulls, however, might not want to know that the Indian penchant for the metal is waning. The demand for gold as an investment overtook that of jewellery a couple of years back: purchases of gold for jewellery dropped to 2,193 tonnes in 2008 and then to 1,758 tonnes in 2009. Not to mention that the high price has increasing numbers of middle class Indians dashing to the local equivalent of Cash Converters.
Murmurs of further Eurozone and Middle East unrest could also boost the gold price, beefing up the credibility of the bad news, good gold price meme. A friend has taken the concept to heart: after an unsuccessful proposal, he is left with a ring. He laughs that on the upside at least the ring has increased in value. Perhaps if he gives it a few more months he can cash it in for a flight to Auckland.