Odd Couple: Stocks, Gold Share Same Ride Higher
Source: Wall Street Journal, E.S. Browning (10/26/09)
"Gold futures, a bet on calamity, are up 19%."
So far this year, the Dow Jones Industrial Average, a bet on economic recovery, is up 14%. Gold futures, a bet on calamity, are up 19%. The reason: Low interest rates and heavy government stimulus have poured cheap money into financial markets, helping both the economy and stocks. But the creation of all that money, together with the Federal Reserve's maintenance of near-zero benchmark interest rates and the prospect of heavy government borrowing to fund deficits, threatens to weaken the dollar and fuel inflation and economic volatility later.
Just a few years ago the idea that paper money was somehow suspect and gold was the best store of value was the province of a frightened few. No longer. In recent months, gold has been pushed to new highs as investors who once considered precious metals archaic have been shifting funds in that direction to avoid a too-heavy exposure to Western currencies.
In 1999, New York gold futures were near $250 a troy ounce. By Friday, they had quadrupled to $1,055.60, just off the New York late-day record of $1,064.20 on Oct. 13, making gold one of the best investments of the past 10 years.
Even some of gold's fans are worried it might be getting ahead of itself. On a nominal basis, New York gold futures have far surpassed their past record of $825.50 hit in January 1980.
Adjusting for inflation, however, gold would have to double to $2,291.55 to reach its 1980 high, which its supporters believe means it could go much higher before becoming expensive compared with its price during other troubled times.