Rising Gold Price

Gold Bug

by Thomas H. Naylor, Vermont

During the thirty years in which I taught economics at Duke University, I seldom thought about gold, since gold was considered passé by most economists.

But over the past couple of years I began reading the quarterly Trends Letter of my friend Gerald Celente, one of the best socio-economic, political forecasters in the business. Celente and I share a common pessimistic view of the sustainability of the American Empire - particularly under the leadership of George W. Bush.

As the e-bubble burst and the stock market came crashing down, Celente began writing about the virtues of gold as a safe haven investment. His pitch for gold became even more intense after September 11, 2001.

In the final issue of Trends Letter Celente pulled out all of the stops. He essentially said, 'If you think the world is going to hell in a handbasket, put your money in gold.' And he was dead right.

After being in the doldrums for over a decade, the price of gold recently shot up from $315 per ounce, to nearly $360 per ounce in only a few weeks. But on average, every one percent increase in the price of gold gives rise to a three percent increase in the value of gold mining stocks. As a result, gold mining mutual funds were among the very few big stock market winners in 2002.

The price of gold is often positively correlated with financial and political risk. The more chaotic the environment, the higher the price of gold. It's not by chance alone that nearly every time Bush opens his mouth, the price of gold goes up.

Neither the Bush administration nor the Congress has made any attempt whatsoever to sort out and identify the root causes of terrorism. Revenge and full spectrum dominance are the objectives of our megalomaniac political leaders.

For this reason 9/11 may very well have been the beginning of the end of the American Empire. Couched in the tough talk of the Old West, Bush has called for national unity, the destruction of Afghanistan, increased government surveillance, the curtailment of civil liberties, an international coalition to take out Osama bin Laden and his Al Qaeda network, an externally imposed 'regime change' in Iraq, and the possibility of unspecified acts of aggression against North Korea and Iran. Indeed, nuclear warfare has not been ruled out. As Bush loves to say, 'All options are on the table.'

The destabilizing effect which all of this bellicose talk has had on international financial markets is hardly surprising.

Following World War II, French existentialist writers like Albert Camus and Jean-Paul Sartre proclaimed that life has no meaning whatsoever. It is 'absurd.' Nowhere is the case for the meaninglessness of life expressed more eloquently than in the book of Ecclesiastes in the Bible. 'Our fate is like that of the animals...Everything is meaningless. ...All go to the same place; all come from dust, and to dust all return.'

What could be more meaningless than an investment in gold? Although some gold finds its way into commercial use in the form of jewelry, dental crowns, electronic devices, and industrial processes, most of it is stored as bullion in the vaults of central banks, financial institutions, and corporations. It is used by investors and speculators as a safe haven investment of last resort. When all else fails, there is always gold. Commercial transactions are only rarely settled through the use of gold.

Wars, terrorism, recessions, embargos, and supply shortages all give rise to higher gold prices. In general, the more misery there is, the higher the price of gold.

It's not easy to come up with a strong moral justification supporting investments in gold and its high returns. While speculating in gold may not be immoral, since it is not the cause of our misery, at best it is probably amoral.

Perhaps gold is the ultimate cynical investment - an investment thoroughly grounded in nihilism. If we alone have to create our own meaning, then clawing meaning out of gold is a tough challenge.

I must take leave of you now. There is a report on the Internet that President Bush called Saddam Hussein a 'lily-livered sapsucker' in his White House press conference today. I want to check the current price of gold.

Thomas Naylor is Professor Emeritus of Economics at Duke University and coauthor with Frank Bryan of the forthcoming book Sustainable Nation-State.