Everybody loves gold - but why? True, 'Goldfinger' sounds a lot better than 'Hogfinger', but given a choice I'd rather eat a pork chop than a South Africa Krugerrand. It may also be a lot sexier to caress a bar of gold than a musty stock certificate, just realize that ingot won't be paying any dividends other then attracting a few equally precious old gold diggers.
Mankind has been infatuated with gold ever since we first crawled down to the riverbank and discovered junk investments. In fact, gold was first used as money as early 700BC by the early Greeks. Since that time, politicians have been spending it faster than we can sluice it -with the Greeks tending to lead the pack if their current economy is any measure. Over the millennia, untold millions of people have also been maimed, tortured and killed in the quest to accumulate more and more of this hard political capital. Sure, gold allowed wealth to be accumulated and empires to rise - not a small achievement - but all those slaves worked to death in old gold mines probably found this scholarly argument as unconvincing as our modern inflated tax bills. There was also a time when US dollars were actually backed by gold. Have you ever wondered how much gold would have to be stored in Fort Knox to back up a $15,000,000,000,000 debt?
Modern investment dealers still love gold and keep advising us to hold a slice of our portfolio in this traditional 'safe haven' - despite the facts that the dealers extract a pound of flesh in commissions and it makes a rather nasty lump in our pillows. Not surprisingly, these pundits have been somewhat quieter this past month. Gold just about jumped off the charts in August after the greenback was thrashed by S&P. The price rose almost $400 in just a few weeks - only to lose nearly $300 in the last month. It would seem that gold may have suddenly lost its lustre after so many years as the reigning king of collateral!
Why has gold fallen? It is really the most ironic story of the year and this simple truth is actually funnier than any cheap attempt at humor. When the US almost defaulted and the credit rating was downgraded, the markets went into a predictable red funk of selling. The result was that investors had a lot of homeless cash looking for a place to crash. They could have bought gold - but they didn't! Instead they went and invested in those same downgraded US treasuries that financed the same enormous dysfunctional debt that had caused the original economic problem! The result of this strange financial somersault was to actually drive the dollar up and treasury interest rates down to historic lows!
This must be the first time in history that a bad credit report has resulted in a flood of loan offers at bargain rates! Try not paying your mortgage this month and see how many banks will be begging you to borrow their money at next to no interest! Yet, amazingly, this is exactly what happened!! Investors simply decided that it was better to loan their money to broke Uncle Sam at nearly 0%, rather than buy some shiny, expensive metal they couldn't eat or smoke.
Now that we have finally broken the old taboo and admitted that a tin can of beans has more real, intrinsic value than a huge lump of soft yellow metal, I am expecting that the next fad in jewelery will be pasta rings, bean studs and M&M necklaces. This trend should give a whole new meaning to the old saw about 'saving for a rainy day'.
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