With economic uncertainty still running rampant, the price of gold is higher than Cheech and Chong put together. Is this precious metal the new long-term king of commodities, or will its reign come crashing down when we least expect it?
On The Motley Fool’s Twitter feed, Foolish follower @hutsell215 asked:
Is gold a bubble? I know investors are "high" on gold right now, but I’m contemplating a long-term short on the precious stuff.
We posed that question to a gaggle of gilded Fools, all with their own perspectives on gold’s future. Bear in mind that any stocks, ETFs, or other investments they mention aren’t 24-karat recommendations – just suggestions to kick off your own further research.
Anders Bylund, Fool contributor
Is gold bullion the new tulip bulb? Looking at a long-term chart of gold prices, it’s hard not to reach that conclusion. The glinting stuff has tripled in value in five short years, and it’s currently riding a rocket sled of seemingly speculative gains.
But there’s nothing intrinsically valuable about gold. You don’t eat it, you can’t sleep on it (unless you’re Scrooge McDuck), and the metal has rather limited real-world uses in general. Stocks rise over the long term because people work at making the underlying businesses better and more profitable. Gold? Eh, dig up some more.
If all you want is a rock-solid long-term investment that won’t go away in the next 20 years, you’re better off with a whole-market index fund or a handful of truly solid stocks. I intend to ride Google for decades, though the more income-oriented among you might prefer Coca-Cola. Take your pick. When the gold bubble pops, these value creators will keep on growing.
Christopher Barker, Fool contributor
Any serious discussion of a gold bubble must first concede that a vast graveyard of similar failed calls has characterized this entire bull market. When gold began a grueling 18-month correction in March of 2008, I encouraged bubble-declaring Fools to keep their gaze on the underlying fundamental drivers supporting sustained strength in gold prices.
Now that we stand at another key crossroads beneath $1,250 an ounce, I remind Fools that the very same fundamental drivers remain firmly in place. The only difference today is that the U.S. dollar is experiencing a near-term rally because of a more acute crisis in the euro. However, the scale of deficit spending, and the duration of this zero-bound interest rate environment, do not bode well for sustained strength in the greenback.
I understand that many investors out there look upon the gold price with a very different pair of eyes from my own. Because all gold investors must be prepared to endure gut-wrenching corrections, conviction is a key ingredient to successful gold investing. If you are not convinced, as I am, that gold will reach $2,000, or that my top pick, Silver Wheaton, will reach par, then by all means, stand on the sidelines.
However, even those who may be 100% convinced gold is in a bubble are strongly encouraged to abandon any thoughts of shorting gold. As I said in early 2009, I could scarcely conceive of a riskier activity.
Andrew Sullivan, Fool analyst
It’s very simple. Gold is money. Dollars are simply a promise that competes with gold. If people become less confident in dollars, gold goes up in paper terms – precisely what is happening now, because of inflation, enormous fiscal deficits, and high debt levels.
To put the current price in perspective, gold’s 1980 high was about $7,000 in today’s dollars when using the original CPI methodology, and $2,200 when using the new methodology. On that basis, today’s price looks cheap. More importantly, China, India, and Russia all want to diversify away from the dollar, and central banks have turned into buyers from sellers, creating something of a price floor.
June 16, 2010
