Gold fever could make Bush sick
Published December 18, 2002
Gold is the smallpox of the financial markets.
George W. Bush says he'll get a smallpox vaccination as part of a new program to inoculate Americans against the possible terrorist threat.
He'd be well advised to protect himself from the gold bug.
For the last 20 years, most investment advisers have assured their clients that gold was a loser. They were correct.
After spiking to more than $750 an ounce in early 1980, the price of gold gradually slumped to about $255 when Bush took office.
It's hard to establish cause and effect, but the fact is gold has rallied since Bush took the oath.
On Tuesday, the precious metal reached a 5 1/2-year high in New York spot trading, reaching $341.70 an ounce.
The recent rally in gold reflects, among many factors, weakness in the dollar versus the euro. The dollar is trading at a nearly three-year low against the euro.
But the historical inverse relationship between gold and the dollar isn't the whole story. In fact, the dollar strengthened in the first half of 2001 and again late last year. All the while, gold moved higher.
This year, the price of gold is expected to be up more than 20 percent. Mutual funds invested in gold-mining stocks are the biggest winners among funds.
War jitters are a major factor in the flight to safety in gold. The price of gold jumped 18 percent, to $406.90 an ounce, in the seven months between Iraq's invasion of Kuwait and the gulf war of 1990. But the price of the metal quickly receded to the $350 range.
The latest gold rally began before Bush decided to become bellicose against Saddam Hussein.
The danger Bush faces in the gold market is this: The U.S. economy is racked by an epidemic of corporate deceit as well as intractable overcapacity in many industries. America needs risk-takers and speculators willing to bet on enterprises that produce American economic expansion and jobs.
Instead, speculative instincts, embodied in sophisticated hedge funds and ordinary investors, are gravitating to gold, which produces no jobs or economic growth.
Traders who love price volatility are finding the gold market a ready source of action. The stock and bond markets, by comparison, seem bland. |
