A Rational Opinion on Gold
There is so much rubbish being written on either side of the debate on gold, that when you come across someone with a few sensible things to say, it's worth pausing to listen to them.
Whether you are a gold bull or bear (I happen to be rather more bullish), this Barron's interview of John Hathaway, manager of the Tocqueville Gold Fund, is useful reading (The Golden Mean, Jun. 5, 2010).
On the question of whether gold is a buble now, Hathaway frames the question in an illuminating manner (I have added the emphasis):
"The price of gold as quoted in dollars -- or in Zimbabwe dollars, to make it a really absurd example -- can look like a ridiculous chart. In terms of bubble analysis, it might look very dangerous. But then you look at what is driving it and you say, well, what is the real bubble? It really has been money creation."
Asked whether people should wait before investing in gold and whether it is possible to time the gold market, Hathaway responds:
"It is very hard to say. Diversification into some form of gold exposure strategically still makes sense. If this were a football game, we would be at the beginning of the third quarter. The first two quarters lasted about 10 years. The first quarter you had this stealthy accumulation. Second quarter, gold became more fashionable to talk about, and you began to see some very high-profile, smart investors coming in. The third phase will be more people jumping on the bandwagon, and the fourth quarter is just silly season. It's just Greenspan's irrational exuberance."