American Principles Project - NY Times: The worse things get, the better it looks for gold

The following excerpt is from a New York Times article on the increasing interest in gold and a return to the gold standard as a result of debasement of the US dollar through quantitative easing and instability in the global market. 

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Nicholas Arnold
American Principles In Action


In a Gold Lovefest, Shades of 1980

THE worse things get, the better it looks for gold. That’s been the pattern this summer.

Worried about Greece, the future of the euro, the debt ceiling in the United States, or maybe even about the entire global economy? Buy gold bullion.

Plenty of investors, at least, have been thinking that way, driving the price of gold to nominal, if not inflation-adjusted, highs.

Last week, as separate teams of high-level negotiators sought solutions to the Greek debt crisis and to the debt-ceiling morass in Washington, gold crossed $1,600 an ounce for the first time ever.

While the price fell on signs of progress on these nettlesome issues, gold ended the week at $1,602.60. (That’s well below its 1980 inflation-adjusted peak of $2,516, said Edward Yardeni, an independent economist.) Gold hasn’t been flying this high since the halcyon days of supply-side economics early in the Reagan administration.

Ben S. Bernanke, the chairman of the Federal Reserve, is hardly a gold bug, but he has taken notice. In response to brisk questioning by Representative Ron Paul — the Texas Republican who is running for president for the third time, and has advocated a return to the gold standard — Mr. Bernanke acknowledged that he is paying attention to gold prices.

“I think the reason people hold gold is as protection against what we call ‘tail risk’ — really, really bad outcomes,” Mr. Bernanke said at a Congressional hearing this month. “To the extent that the last few years have made people more worried about the potential of a major crisis, then they have gold as a protection.”

In a recent column, I noted that some experts don’t consider gold an appropriate asset in a typical diversified investment portfolio, partly because it generates no earnings, yet holding it entails cost. Gold is, however, certainly a financial asset, held by many central banks and prized by many private investors around the world.

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