Gold Prices Soar
Gold prices are up sharply this year, closing Friday at $527 an ounce. That's the highest value for gold in nearly 25 years — and market observers expect the price may rise even further in the months ahead. But just why gold prices are up so much is something of a mystery.
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From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
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The gold bugs are jittering. Gold prices are up sharply this year, closing today at $530 an ounce; that's the highest price in nearly 25 years. And market observers expect that gold may keep going up in the months ahead. As NPR's Jack Speer reports, the reason why the precious metal is doing so well is something of a mystery.
JACK SPEER reporting:
Our obsession with gold goes back thousands of years. The valuable metal, once the providence of noblemen and kings, later became a key method of exchange. Peter Bernstein is the author of the book "The Power of Gold." He says almost all the gold mined through history, an estimated 4.4 billion ounces, is still around today.
Mr. PETER BERNSTEIN (Author, "The Power of Gold"): It's fascinating stuff because it does not tarnish, and therefore it's beautiful, and it gives a kind of an impression of eternity. And it's really, I think, those attributes that made it so fascinating to people.
SPEER: Gold for centuries has been used to make jewelry, but throughout history it's also been seen as a hedge against uncertain times. In the early 1980s, when the US economy faced runaway inflation and double-digit interest rates, gold prices briefly topped $800 an ounce. George Gero works for Royal Bank of Canada Capital Markets. A gold trader since the early 1970s, he thinks there's, again, unease on world markets that's helping push gold prices higher.
Mr. GEORGE GERO (Royal Bank of Canada Capital Markets): I'm not saying history repeats itself, but there are concerns today in the markets that seem to indicate people need or want or think they need to protect their purchasing power by buying gold.
SPEER: But it's not clear why investors should be worried now. It's inflation that usually pushes up gold prices, and with the exception of energy, inflation hasn't been much of a problem this year. That's got some people wondering how long the current rally will last.
Mr. JEFFREY CHRISTIAN (Managing Director, CPM Group): Gold prices have never really stayed above $500 for an extended period of time.
SPEER: Jeffrey Christian is managing director with CPM Group, a precious metals consulting firm. He thinks rather than any one cause for the rise in gold prices, he believes there are a variety of reasons gold's been moving higher.
Mr. CHRISTIAN: You have some investors who have been buying gold because they're concerned about currency; others because of the stock market; others because of bonds; others because of inflation. You have investors who have been buying gold as a commodity because they thought that the time was right for the price to rise again. And you have other investors who have been buying it for political reasons.
SPEER: Another factor: Central banks, which until recently had been selling their gold holdings, have now slowed sales. And the companies that mine gold have recently changed their hedging strategies; that's had the effect of reducing the supply of gold on the market and also driving up prices. As for the future of gold prices, author Peter Bernstein says that depends as much on investor sentiment as anything.
Mr. BERNSTEIN: Buying gold in addition to not getting any income is a costly thing to do if the world is really going to be OK over the long run. But if the world is not, the price of gold could go to--I don't know; pick a number--4,000, 5,000. A little bit of it will go a long way.
SPEER: Year to date the price of gold has risen 20 percent. Over the past five years, its price has roughly doubled. That's caused even some large institutional investors to begin buying gold bullion or shares in gold-mining companies. But analysts say there's also something of a herd mentality among investors because gold's rise has been so much stronger than for other types of investments. Jack Speer, NPR News, Washington.
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