An enduring, and emotional, allure

Gold is attractive to wear and look at, but even more attractive to own as a commodity these days.

China Daily/Reuters
A sales assistant displays a gold accessory in the shape of Buddhist goddess Guanyin at a gold store in Jiujiang, Jiangxi province, China on July 13. Gold hit record highs on Wednesday on safe-haven buying linked to the European debt crisis and a dollar weakened by hints of more economic stimulus from the Federal Reserve, while supply concerns drove most other commodities higher.

Why all the fuss about gold?

That might sum up your attitude about the soft metal if your encounters with it are pretty much limited to your wedding band, the high-end HDMI cable that meant splurging at Best Buy, and late-night reruns of "The Treasure of the Sierra Madre."

It's hard to relate to those gold-obsessed figures from fiction and life, from the pharaohs to the marauding Cortez, the buccaneers to the forty-niners, rap stars to Scrooge McDuck.

And it's not so easy to understand so-called "gold bugs." For that crowd – clamoring again today amid ominous news about governments nearing default – it has that comforting weight. Pulled from the earth, and with inherent worth, gold becomes a stalwart alternative to "fiat currency," promissory paper that might end up worthless. Nobody wants to end up having to use a wheelbarrow as a wallet.

Gold bugs come in different shades. Their motivations vary. To strident proponents of a return to a gold standard for the Treasury, gold represents a hedge against inflation. To survivalist types who stash gold bars behind basement walls, it's a hedge against chaos in the streets. That makes gold's value a kind of "anxiety index," as Jessica Bruder explains in her globe-girdling explanatory piece, which begins on page 26.

If you're holding some of the stuff, then good for you. Maybe keep your voice down. Gold really glitters right now: It passed $1,500 an ounce for the first time in April, and runs slightly above that at this writing – five times its value at the start of the decade.

Of course, past performance, as the financial houses like to say, is no indication of future returns. As an investment, gold is hardly a no-brainer. A little exposure to gold in your portfolio might be just fine, but loading up is a risky play. Gold's value can easily dip – or plunge. The pros watch indicators that are much more arcane than global jewelry demand, though demand is an obvious factor. There's the relationship between gold and oil prices, for example (the commodities tend to rise and fall in tandem).

Still, some deep vein in the human psyche seems almost instinctually bullish on bullion.

"To me, gold is an emotional metal," says David Francis. The best plain-language decoder of monetary mysteries I know, David was the Monitor's economics writer and columnist for more than five decades until his retirement early this year. I got in touch with him one recent afternoon.

Speculators can get rich when gold prices climb along with fears about inflation, David allows. "But speculators also take a risk the price will go down on good news – say, the US deals with its international-deficit problem – and they will lose money."

So what about the long-shot notion – kicked around some by at least one would-be presidential nominee – that America's economy ought to be built on a gold-brick foundation?

"I can't see going back," says David, who was on hand in Washington in 1971 when President Nixon announced that the United States was going off the gold standard. (Gold's role in the economy had been reduced in 1933 under President Roosevelt. But a remnant of the gold standard remained in the official US Treasury policy of selling its gold to other countries with surplus dollars.) "Yes, [the gold standard] restricted the creation of new money by the Fed and, on average, one result has been more inflation since its end," says David, probably eager by now to get back to his garden. "But ending that restraint has also meant lower unemployment, on average, and greater economic stability with smaller recessions."

That's a reasoned, gray-suit assessment. But behavior around gold isn't typically so sober. CBS News last month reported on Raffi Stepanian, an unemployed jewelry setter who has taken to prospecting in New York City – on the sidewalk along 47th Street, specifically – for "placer deposits."

This real-life Yukon Cornelius figured that residual gold flakes (and gemstone fragments) must have been carried onto the streets of Midtown by past generations of jewelry-makers in the district, settling in the cracks. Folly? At the time of the report, he was pocketing $800 worth of gold in a good week. Not so hard to see the allure.

Clayton Collins is the editor of the weekly edition. Monitor editor John Yemma returns to this space next week.

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