Gold Fever: Pondering the Causes

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"Those who think the big inflation is coming in the U.S. do not think we will suffer alone."

It is not easy to have a calm discussion about gold. There are people who all but worship it and there are people who view it as a barbaric relic of an earlier era.

If you are in the latter group, you probably look at it as just another commodity, whose price should reflect the demand for it in various industrial uses and for jewelry.

That analysis basically prevailed in the 1990s. That was an era of growth around the world, and it was the time when central bankers convinced governments that they deserved independence in the pursuit of wise monetary policy.

The problems of 1980 and 2010 both led to the same conclusion: that the modern monetary systemócalled "fiat money" by critics to emphasize that nothing real stands behind the value of currenciesódoes not work. Gold is the alternative.

During the last gold boom, there were other ways to bet on the continuing failure of American political leadership. One could buy German marks, or Swiss francs or Japanese yen. All those economies appeared to be much better managed than those of the United States or Britain.

Now there are fewer alternatives. Those who think the big inflation is coming in the United States do not think we will suffer alone.

It is distrust of elites that feeds some of the current gold fever. So far this year, both gold and stocks are up. That combination is unlikely to last out the current decade.

Betting that $1,400 gold will soon be $1,800 gold or $2,500 gold is basically a bet that the West really is in permanent decline this time, with countries facing the prospect of bankruptcy or sharp reductions in spending on everything from schools to pensions. Or perhaps all of the above.

Let's hope the bet is wrong.

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