RENEE MONTAGNE, host:
Our Planet Money team has decided one way to understand the economy is to be active in it.�Earlier this year, they bought a toxic asset - a complicated mortgage bond - and they dissected it to learn about the financial crisis.
Our Planet Money spent $1000 of its own money and lost half of it. Now they're using what's left to make another investment. They're going to buy gold. The price of gold has been going through the roof lately.�David Kestenbaum and Jacob Goldstein wanted to understand why.
JACOB GOLDSTEIN: Just a few blocks from our office in New York there's a great place to buy gold: it's the Diamond District up on 47th street.
Unidentified Man #1: We buy gold, diamond watches. Buy, good price, good price, today.
DAVID KESTENBAUM: In my backpack I have $449.06 in a mason jar. That's what's left over from our toxic asset adventure.
Unidentified Man #2: We buy gold, diamonds, cash on the street.
KESTENBAUM: We walk into this place we found listed on U.S. mint website.
GOLDSTEIN: Don't think of it like a regular store. Think of something more like a food court. There's stall after stall of guys selling jewelry and gold.��And one stall has two guys and a piece of paper taped to the wall.�The paper says Gold Standard, which is the name of the business.
KESTENBAUM: The guy who runs it is Hank Mendolson. He's been here since the 70's. He got his start going around to dentists' office, buying teeth with gold fillings.
How are you doing?
Mr. HANK MENDOLSON (Gold Standard): I've very well, thank you. How are you guys today?
GOLDSTEIN: We're very excited - very excited to get in on the way up.
KESTENBAUM: The rising price of gold gets at a big question.�What gives something value? The price of gold has doubled in the last three years.�Why?�
GOLDSTEIN: For Hank, it doesn't really matter why. It's good for business. He says a hedge fund wired him hundreds of thousands of dollars one time and sent an armored car to pick up the gold.
KESTENBAUM: That's why we're here. We want in.�
GOLDSTEIN: Hank sticks his head in a gigantic safe behind the counter and he comes out with a bar of gold. It's about the size of a chocolate bar, but way heavier.
Mr. MENDOLSON: Don't drop it. I already put a silver bar through the glass once.
KESTENBAUM: That's what, two pounds or something, right?�
Mr. MENDOLSON: 2.2 pounds.
KESTENBAUM: How much would it cost for us to buy this now?
Mr. MENDOLSON: $42,000.
KESTENBAUM: $42,000 is clearly out of our price range. So he pulls out a coin.�It's about the size of a half dollar - an ounce of gold.��
GOLDSTEIN: But we can't even afford that, so Hank starts digging around under the counter looking for something smaller.
Mr. MENDOLSON: That's a half. That's not going to work. Let me give you a beauty.
Mr. MENDOLSON: I'll give you a beauty. It's a little bigger than a nickel.
GOLDSTEIN: I wouldn't call it heavy.�Heavy is not the right word to describe this coin. It's pretty, very shiny. Like if I were a bird and I liked to put shiny things in my nest, I would take this coin.
(Soundbite of coin being dropped on counter)
Mr. MENDELSOHN: That's your coin if you want it. You got to give me $419.
GOLDSTEIN: Twenty, 40, 60, 80, 100...
KESTENBAUM: We're not the only people buying gold right now. Everyone has their reasons.
GOLDSTEIN: A big one is just history. People say gold has been valuable for thousands of years.
KESTENBAUM: On the other hand, a lot of people worry we might be in a gold bubble. And it is weird taking a jar of cash, handing it over for this tiny piece of metal. After all, it's not food and it's not like you can fuel your car with it.
GOLDSTEIN: Why is gold worth anything?
MR. MENDELSOHN: I ask myself the same question. I had a talk with my brother this morning. He says money is worthless. They're printing trillions and trillions of dollars, the governments, and it's worthless. I says, well, what makes you think gold is worth? What is gold? what do you do with gold? I think about it all the time.
Professor DENNIS GARTMAN (Trader, Economist): Don't try to make sense of gold. It's a psychology. It's gold.
KESTENBAUM: That's Dennis Gartman. He's worked in the financial world for 35 years and manages hundreds of millions of dollars of investment, over 25 million in gold.
GOLDSTEIN: He says some people are buying gold because they're worried about inflation. They're worried the dollar is going to lose value, and so will the euro and so will the yen.
KESTENBAUM: So they buy gold, it's like another currency. Who cares if it's just a metal, Gartman says. If everyone believes it's valuable, acts on that belief and buys it, it is valuable.
Prof. GARTMAN: It's not Microsoft as a functioning business. Don't try to think of gold in those manners. You will drive yourself crazy.
KESTENBAUM: I'm looking at this gold coin I'm holding here. When I look at this, I should think this is like...
GOLDSTEIN: It's an idea. You're holding an idea.
Prof. GARTMAN: That's perfect. Gold is nothing more than an idea. Perfect. Perfect.
KESTENBAUM: Do you ever worry that the world will say: Oh, it's just a metal -this is crazy; I'm going to go buy food or stocks or something else? Then it goes down to like $10 for this coin instead of 400. What if it's happening right now? Let me check the markets.
Prof. GARTMAN: Well, it's not. I can tell you right now. I'm going to look at my BlackBerry. And I can tell you when I awoke this morning it was trading 1347. It's now trading 1359.60, as we write.
GOLDSTEIN: Hey, we're up. We're making money.
Prof. GARTMAN: Now, it's - oh, I'm wrong. It's actually gone up in the last few minutes dramatically. It's now 1367. That's a new all-time high.
KESTENBAUM: Actually it's not an all-time high if you correct for inflation. If you correct for inflation, in 1980 the price of gold shot up to over $2000 an ounce.
GOLDSTEIN: And then it plunged. It lost almost half its value in just a few months. People tell us there was chaos on the streets of the Diamond District.
KESTENBAUM: For this experiment, we are going to sell our gold in exactly six months. But before then, we'll bring you stories about gold and money.
GOLDSTEIN: And the nature of bubbles. Maybe by then we'll know if this was one. I'm Jacob Goldstein.
KESTENBAUM: I'm David Kestenbaum, NPR News.
(Soundbite of movie theme "Goldfinger")
MONTAGNE: In the unlikely event that Planet Money investments make a profit, that money will go to charity. For more on the economy, sign up for the Planet Money podcast at NPR.org.
You're listening to MORNING EDITION from NPR News.
NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.