Money Magazine Features Gold As Hot

What can you say about an article that begins with this picture-painting -

At Harrod's department store in London, you can pick up a South African Krugerrand or a 27-pound gold bar along with a sweater and bed linens.

- other than noting that a stumble out of Harrod's with a 27-pound bar in the briefcase makes for a Youtubeable moment?

[Come to think of the subject, it would be more entertaining - and far less expensive - to try it with a 1000 oz, or 68 1/2 pound, bar of silver. Thanks to MetricConversions for the pound figure.]

The entire opening paragraph has some data to make the point that gold is now hot. In the words of the article itself, 'Once of interest mainly to central bankers, Swiss jewelers, and folks who are convinced the Trilateral Commission runs the planet, gold is now the world's "it" investment.' However, the bulk of the article suggests that gold's in a bubble. Comparisons with residential real estate are made more than once, and the overall thrust is debunkative or sobering.


This kind of article pops up at the cusp of a bubble, not during the climax of one. As should be clear from reading it, the author thinks that five listed rationales for gold going up are impugnable; he seems to think that the current gold bull is irrational. One of the earmarks of a bubble in an asset is a sustained rise in the face of "no good reasons for it." (As the article notes, inflation hasn't taken off.) To the extent that this article is representative of cool-headed if skeptical opinion, that's the stage we're in now.

A note: one of the experts quoted therein, Mark Hulbert, has weighed in on the inflation/deflation debate. He said yesterday, as based upon reading the gold and T-bond markets, that the scales have tipped towards inflation. That call does not mean that he's a gold bull, though.


Update: Along the same line is a briefer debunkment in Daily Finance. At its heart is a 2004 paper which concluded that commodities in general don't make for a good inflation hedge, a portfolio made up entirely of commodities doesn't beat the risk-free rate, and adding commodities to a portfolio doesn't add any diversification protection. The title of the article asks, "Is Gold For Fools?"

If gold's December decline has truly reversed, expect more articles of this sort. To put it one way, Nouriel Roubini's name is still hallowed.

To put it less diffusively, more than a few people saw November's parabolic rise as a bubble in and of itself. A decisive reversal of December's decline will leave them feeling a little bit cheated...