Last week, in the minds of some people, the mountain came to Mohammed. I base that on the price of gold. It finally eclipsed the mystical barrier of $2,000 per ounce. For years, gold purveyors have been portending gold achieving that price and higher. Some maintain it will climb to $5,000. Then again, they’ve been saying that since the mid-1980s.
While gold has certainly achieved a new high, that record requires an asterisk. When gold hit $850 in 1980, if adjusted for inflation that would have been over $2,600 in today’s dollars....
Gold has historically been a safe harbor when inflation is high. But, now, consumer prices are up barely 0.7 percent. So, that’s not it. Maybe it’s the value of the US dollar. It has surely weakened. That, combined with the lowest interest rates in recent history, has investors looking for alternatives.
While gold soars, even Warren Buffet – the “Oracle of Omaha” – is not taken in. He is quoted as saying, “…gold won’t do anything except look at you.” In a way that’s correct. The physical uses for the precious metal are limited.
Gold is a fabulous conductor of electricity and used in some electronics. But, now it’s awfully expensive for that. It is also one of the most malleable metals. Just one ounce of gold can be extruded into a thread 60 miles long. Because it is immune to corrosion it is widely used in dentistry. Its permanence is also why it is the symbolic choice for wedding rings.
Investment advisors have commented on the run up in gold prices. According to John LaForge, the head of real asset strategy at Wells Fargo Investments, “…gold is being seen as a check against government interference in the markets.” That speaks volumes about what may or may not happen this election year and beyond.
Jim McDonald, chief investment strategist at Northern Trust has a more cautious attitude. “Gold does provide downside protection when the world comes apart,” McDonald is quoted as saying.
That has been proven true many times in the last century. When Jews were escaping Nazi-dominated Europe in the late-1930s, it was gold smuggled out that let some start anew. So too for countries in the Middle East. Bribery with paper currency offered to those in power doesn’t hold a candle to the clout of persuading gatekeepers with the clink of heavy, gleaming gold coins.
The thing is, gold is capricious. After soaring in the early-1980s, it plummeted to less than $400 in 2000. It shot up again in 2012 then dropped once more. Gold has since set a new record, for now.
In 1941, the US gold supply held at Fort Knox was a whopping 649 million ounces. Since then, most has been cashed in or turned into coins. Today, there are just 147 million ounces at Fort Knox, worth some $300+ billion. If that sounds like a lot, consider that is barely one eighth of what has just been allocated for the Coronavirus stimulus packages. That too may be the reason for gold soaring. Or, maybe it’s the social unrest we see nationwide.
Though upwards of 160,000 tons of gold are thought to have been mined by humans, it’s estimated 80 percent of the earth’s gold still lies underground. In addition, some say billions of tons of gold await in the world’s oceans. That’s a whole different subject for another time.
There are hundreds of types of gold coins in the world. It’s been that way for millennia. The very first pure gold coin was struck by King Croesus of Lydia (now Turkey) in 540 BC. Each subsequent gold coin variety has been coveted. Wars have even been fought over them.
Either way, the American gold Eagle remains the universal choice for gold ownership. It’s recognized globally as the “gold standard” for coins. LaForge suggests the price of gold could climb to $2,200 or $2,300 by year-end. Others warn it could drop precipitously. Then again, so too may stocks and bonds.
In the end, it’s all a matter of a roll of the dice. Perhaps golden dice, but dice all the same.
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