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Economist Wonders 'What Could Justify Another Huge Increase In Gold Prices'

Gold jewelry pieces sit in a pile. i i

Could the price of gold continue to escalate? Steven Senne/AP hide caption

itoggle caption Steven Senne/AP
Gold jewelry pieces sit in a pile.

Could the price of gold continue to escalate?

Steven Senne/AP

Flipping through TV channels and many magazines, I've noticed a lot of ads for gold recently. Spokesmen — including FOX News personality Glenn Beck — tout the mineral's longstanding value and its potential to appreciate.

"It has never been easy to have a rational conversation about the value of gold," Kenneth S. Rogoff, a Harvard University economics professor, says. "Lately, with gold prices up more than 300 percent over the last decade, it is harder than ever."

Just last December, fellow economists Martin Feldstein and Nouriel Roubini each penned op-eds bravely questioning bullish market sentiment, sensibly pointing out gold's risks.

Wouldn't you know it? Since their articles appeared, the price of gold has moved up still further. Gold prices even hit a record-high $1,300 recently. Last December, many gold bugs were arguing that the price was inevitably headed for $2,000. Now, emboldened by continuing appreciation, some are suggesting that gold could be headed even higher than that.

Rogoff tries to answer this question: "What could justify another huge increase in gold prices from here?" Among possible reasons:

  1. "...a complete collapse of the U.S. dollar."
  2. "...the dramatic emergence of Asia, Latin America, and the Middle East into the global economy."

At the end of his fascinating piece, he comes to this conclusion: "...despite gold's heightened allure in the wake of an extraordinary run-up in its price, it remains a very risky bet for most of us."

What was true for the alchemists of yore remains true today: gold and reason are often difficult to reconcile.

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