When the New York Times runs a front page story suggesting that now is the time to buy gold and they quote Peter Schiff saying that paper money may become useless, is it time to buy, or a classic signal that the hype exceeds reality? Personally I think buying land, livestock and seeds might be a better bet…
It is the resurgent passion of the doomsday crowd, a bet that everything will go wrong. No matter what has you worried, they say, the answer is gold.
Inflation, deflation, government borrowing or the plunging euro — you name it — the specter of these concerns has set off a dash to gold, driving the precious metal to new highs and illustrating how fears of economic turmoil have moved from the fringe to the mainstream.
And gold bugs, often dismissed as crackpots who hoard gold bars in the basement, are finally having their day.
“I just think you’re in a world where a lot of chickens are coming home to roost,” said John Hathaway, manager of the Tocqueville Gold fund. “Gold is an escape hatch.”
The most visible new gold enthusiasts range from the Fox News commentator Glenn Beck on the right to the financier George Soros on the left, with even some sober-minded Wall Street types developing a case of gold fever. While their language may differ, they share a fundamental view that the age-old refuge of gold is relevant again, especially as other assets like stocks and national currencies show signs of weakness.
Now, individual investors are following their example around the world. The United States Mint is running short of gold coins, and the South African mint increased Krugerrand production by 50 percent late last month, to its highest level in 25 years, on brisk European demand.
The debt crisis in Europe and the ensuing drop in the value of the euro are the most recent catalysts for gold’s spike last week to $1,254 an ounce, a record before adjusting for inflation, but the deeper concern is that even in the United States, government borrowing is unsustainable and the day of reckoning is at hand. Sales of American Eagle one-ounce gold coins tripled in May from the month before.
If governments print more money to pay off their debts, the logic goes, inflation will destroy the value of the dollar, the euro and other paper currencies — thus enhancing the value of gold. What is more, with tax increases unlikely and with Europe on the brink, the unthinkable — a sovereign debt default or the collapse of the credit system — has suddenly become thinkable…
[continues in the New York Times]