The Gold Bubble Pops

December 29th, 2011 at 8:30 am David Frum | 12 Comments |

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The price of gold dropped $31 an ounce yesterday. Gold has dropped $400 since the summer. Gold still shows gains over one year ago. And of course people who bought gold at the prices that prevailed before 2008 can claim profits of 50% or better on their investment. (NB: The best returns have flowed to large-scale investors who eschewed physical gold in favor of futures. And as always, coins are for suckers.)

Further declines look likely. Gold sales have plunged in India, the world’s largest market for gold jewelry. The rupee has steeply declined against the dollar, raising the cost of gold to Indian customers. Traders are speculating that India’s gold imports could tumble by possibly half.

Gold is a uniquely strange asset, because so many people in the gold market buy gold as a matter of ideology and identity. Cocoa, copper, or cotton trade as commodities. Gold trades as a way to make a statement. That’s simply not a sensible way to invest. A great many Americans are paying a steep price – and may pay a much steeper price yet – for allowing hucksters and ideologues to sway their economic judgment.

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12 Comments so far ↓

  • TerryF98

    Becktastic!

  • Houndentenor

    You mean right wing talk show hosts being paid to hawk gold coins couldn’t keep the price going up forever? I’m shocked! Shocked, I tell ya!

    • Graychin

      Sic transit gloria of all Ponzi schemes – including goldbuggery.

    • dante

      Unfortunately in the last 6-8 months I’ve heard gold being hawked on left-wing radio as well… Equal opportunity fleecing?

  • cranky_engineer

    Gotta laugh – I need to tell the Frum universe it isn’t just right wing talk show hosts. Thom (Mr. progressive talk radio) Hartmann sells gold on his show as well. A little gold in your portfolio isn’t a bad thing. It is not going to be the panacea that the gold bugs would have you believe.

  • ottovbvs

    “I need to tell the Frum universe it isn’t just right wing talk show hosts.”

    Er…we know. And in fearful times gold is a hedge and with interest rates where they are at present the opportunity cost of holding gold is small but ultimately it’s a commodity. The problem is the gold aficionadoes think it has magical powers. Ultimately when the level of economic activity returns to more normal levels I wouldn’t be surprised to see it slip below 1200 bucks.

  • Kevin B

    I got a single gold (Canadian) coin in the early 90′s as a graduation gift from my father. He advised me that I shouldn’t keep the coin for sentimental reasons. If I ever got in a bind, I should sell the coin.

    So far, I have ignored his advice. Whether it’s worth $1900 or $1200, I like having the coin more than I need the money.

    Yeah, I’m a sucker.

  • sunroof

    If gold prices fall, it will stimulate the buying of gold jewelry. If prices fall far enough, mines with a high per-ounce operating costs will close, constraining supplies. That’s how it works with most commodities.

  • cranky_engineer

    A friend way back in the 80′s had purchased some gold coins – Krugerrands I think. Soon after the gold prices crashed. He alway referred to them as good gold not the cheap stuff they sell now. A little cynical but telling.

  • redomondo

    What I find stunning is the number of fiat currency-bugs who populate this forum…

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