Nothing inspires a gold rush quite like, well, gold. Since July the precious metal has spiked to more than $1,300 an ounce—a rally on top of a longer rally dating to 2002, when the price was below $300. The dizzying rise has some investors sensing a bubble about to pop—and with one company set to distribute gold-dispensing ATMs in the United States, such apprehension seems warranted.
The gold craze, though, may not be over. "Gold up to $1,300 is a rise that's tantalizing, but is risky. We think it has further to run," says Paul Christopher, a Wells Fargo strategist. The firm's reasoning: as stocks and bonds give middling returns, and yields from ultrasafe investments like T-bills remain low compared with inflation, gold will keep its luster. Second, the Fed's Aug. 27 endorsement of a policy that would put more dollars into circulation bodes well for gold, traditionally a hedge against inflation. Investors who want in, but don't want to own ingots, have other options, like ETFs that trade throughout the day; buying shares of mining companies; or exploring metals that correlate with the price of gold, like platinum and palladium. Other analysts are wary. Vanguard's Chris Philips sees the huge interest from casual investors as a classic red flag—and further warns that gold ETFs may have gotten too big, creating conditions for a fall as rapid as the rise. Finally, if gold is a good bet for inflationary times, its performance in the low-growth years since 2002 doesn't add up. Still have an urge to buy? There's always a necklace.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
