Source: www.nytimes.com
USA, October 8, 2010: Gold evokes emotions from investors like few other investable assets. Whether it is increasing or decreasing in value, people usually have an interest in it beyond its intrinsic value as an investment.
So what should we make of this current moment for gold? It is trading at more than $1,300 an ounce. Last year, the gold exchange-traded fund marketed by State Street Global Advisors was up 25 percent. And it has continued that surge this year, up 18 percent in the first nine months.
Like so many things, the future of gold’s value may lie in India and China. Mr. Toussaint said that is where the biggest demand for gold in the form of jewelry is coming. “The U.S. does not drive the gold price, nor does the investment segment,” he said.
But the question many skeptics are asking is why investors are still flocking to it after such a run-up in value. Are they contributing to a gold bubble? Or has something fundamental happened in the way gold is held in portfolios? Not surprisingly, the emotional divide remains strong.
The pro-gold camp is not just pointing to the metal’s long, steady growth over the last two years. They’re now talking about its permanent role in a diversified portfolio. Fear, as it has historically done, initially drove the buying — fear of inflation and a vulnerable dollar. What surprised Mr. Ross earlier this year, though, was how investors’ attitudes toward gold were no longer being driven by fear. Even as last year’s concerns have subsided, he said, “buying hasn’t diminished.”
On the other hand, the history of gold is replete with surges and crashes. “Gold is worth what you think it’s worth,” said Bill Stone, chief investment strategist at PNC Wealth Management. “It’s very difficult to value. There are no cash flows, so it has no intrinsic value. There is very little commercial use for it. It’s more of a trading vehicle.”
More alarming is the talk of a gold bubble. Mr. Stone said it fitted his three criteria for any inflated asset set to crash: high valuations, excess returns and speculation. “If nothing else, you ought to be mindful of the risks,” he said. Still, there are people who continue to buy gold as a hedge against the world falling apart.
“Ask people and you’ll get five views of why it’s going to go to $750 and five views of why it’s going to $2,000,” Mr. Ross said.