Issue of the week: Gold crosses the $1,000 threshold

last updated 8 January 2015

“It isn’t every week the gold price rises above $1,000,” said Peter Brimelow in Marketwatch.com. “In fact, it’s never happened before.” Then again, it’s not every week that a major Wall Street investment bank goes under because investors lose faith in its ability to honor its debts. And it’s not every week that the dollar falls to record lows against the euro and the yen. These were among the forces that pushed the price of gold above $1,000 an ounce last week, capping a 12-month, 55 percent surge. They also vindicated the “doomsday conspiracy theorists” who see gold as the only reliable store of value in a dangerous world, said Polya Lesova and Nick Godt, also in Marketwatch.com. Indeed, the case for gold gets more convincing by the day. The financial upheavals of recent months have swelled into “the very type of financial tsunami that gold bugs have been dreaming of—and betting on.” They “have long predicted the demise of the dollar, a general loss of any sense of value, and a breakdown of social order.” The only “safe haven” in this apocalyptic scenario is gold. It’s a measure of the depth of the current financial crisis that such views, which once sounded crackpot, are gaining mainstream acceptance. “I used to dismiss these guys as a little whacked-out,” said investment advisor Hugh Johnson. “Now, I wish I’d listened a little more.”

In fact, mainstream investors, not the gold nuts, are responsible for the recent run-up in gold prices, said Javier Blas in the Financial Times. The jewelry producers that ordinarily help prop up the price of gold have dropped out of the market for now, leaving the field open for investors and speculators. Sensing an opportunity to make a quick killing, many speculators have been selling gold. The price of the metal would likely be even higher were it not for the downward pressure exerted by the speculators’ sales. But some observers doubt that their activities will keep a lid on prices for long. “The combination of dollar weakness, negative real interest rates, and surging inflation creates the ideal environment for rising gold prices,” said Tobias Merath, head of commodity research at Credit Suisse. “We expect further gains in coming months.”

Similar expectations are luring “a new breed of prospector” to search the world for deposits of gold, said Elisabeth Malkin in The New York Times. “Geologists and engineers armed with sophisticated equipment and millions of investor dollars” are flocking to Mexico, which has become a haven for mining companies since the passage of the North American Free Trade Agreement in 1994. Companies such as Paramount Gold & Silver are spending $1 million a month to rummage through old mines in search of gold deposits that were out of reach of earlier miners, with their pick-and-shovel technology. “Many mines have several lives,” said Bill Reed, Paramount’s vice president for exploration. “As prices and technology change, they become economical again.” And if gold’s advance continues, the economics will only look better.