The Changing Perception of Gold
Source: BBC, Richard Anderson (5/15/11)
"Gold has become 'the great barometer of uncertainty.'"
Gold's position as the ultimate storer of value has remained largely unchallenged for centuries.
The metal's rarity not only meant it became a trusted form of payment, but also bestowed upon it an almost mystical allure.
Throughout history emperors, kings and queens, governments, central banks and investors have trusted gold to maintain its value.
For investors, therefore, it has always been seen primarily as a good hedge against inflation - traditionally, few people bought gold to make money, simply to protect themselves against losing it.
But all this is changing. Gold has risen in value every year for the past 10 years, during which its price has risen fivefold to more than $1,500 an ounce.
No longer, therefore, is gold seen simply as a way to store value, but as a genuine investment opportunity offering the potential to make a serious return.
But should it be? It is certainly true that all the factors currently driving the price up are likely to continue doing so for the foreseeable future.
Laying aside short-term factors such as unrest and low interests rates, there are three central drivers behind gold's seemingly unstoppable rise.
First, higher inflation rates driven by monetary easing across the world are making gold more attractive.
Second, major global currencies are looking decidedly dodgy.
The US dollar is weakened, due to the country's massive debt problem.
And the euro is undermined by similar issues.
Finally, economic imbalances between East and West are fuelling a general sense of unease.
And as one investment manager put it, gold is "the great barometer of uncertainty."
Add to this the increasing demand for gold jewelry, gold bars, as well as long-term production that is unlikely to rise, and you might think gold was not just an attractive investment but a pretty sure thing.