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Making the Sunny Case for Gold.
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(October 1, 2002) A whole new generation of gold buyers is attracted to the fresh, bright promise of gold, despite gold’s 20th Century association with the gloomy and pessimistic crowd known as gold-bugs. Today, the world's most beautiful and brilliant metal is rapidly overcoming a negative public image in the U.S. that had been 70 years in the making.
Gold. Of all the elements known to us today, gold carries the most powerful emotional charge. For thousands of years, gold, above all other metals, has had the most significance in human civilizations. Gold is the first metal mentioned in the Bible. Gold was the first metal to be worked, shaped, and formed into decorative, religious, and ceremonial objects in our pre-historical past.

Gold has been integral to the progress of human civilization. It was the first permanent store of value and medium of exchange, and gold allowed our species’ progress from a barter economy to our modern commercial economy possible. Gold, a soft, brilliant metal that often occurs in nature in a nearly pure state, has always enjoyed a favored, even exalted status, in every culture on our planet.

Except over the past few decades in the U.S.

The demonization of gold started in 1933 when gold disappeared from our currency. This was part of an effort to stimulate our economy by devaluing the dollar in the depths of the Depression. The private ownership of gold by U.S. citizens from that point forward was not only illegal, but also subversive, unpatriotic and vaguely un-American.

In 1971 Nixon and the Treasury cut the dollar loose from its gold backing, slamming shut the gold window after Treasury gold stocks had been dramatically reduced by foreign redemptions of dollars for gold, an effort led by the French during the late 1960's. And gold, illegal for U.S. citizens to own since 1933 and increasingly unfamiliar to them except in the form of jewelry, was in 1971, with the cessation of the dollar's gold backing, essentially declared obsolete, unneeded, old-fashioned, and hopelessly behind the times.

From that point on, a conscious program was begun by the Treasury promoting the idea that gold was no longer necessary to support the dollar – indeed, that gold was no longer necessary at all in modern times. The thought put forward was that our powerhouse economy had outgrown and, therefore, transcended gold. There simply was not enough gold in the world to support the growing money supply engendered by our burgeoning economy. The dollar stood for money itself, went this line of thought, so who needs gold?

Well, the world needs gold, and the world gold markets loudly proclaimed that fact. Spot prices for gold quintupled from a 1970 price of $40 to over $200 by 1974, due in part to the first oil price shock out of the Middle East. When in January 1975, U.S. citizens could freely hold gold once again, the gold price quadrupled to over $800 by early 1980.

The 1970's reawakened gold awareness in the U.S., an extraordinary decade which saw gold prices make a twenty-fold leap from a $40 base in January 1970 to over $800 in January 1980. This era introduced the first appearance of the American "gold-bug," as gold ownership became legal again for U.S. citizens just in time to catch the second half of this upward adjustment in the price of gold vs. the dollar.

Gold talk was everywhere, stocks, everyone agreed, were nowhere, and hard assets were all the rage. Gold (and silver) fortunes were made and bragged about, and the high point for gold prices ($850.00) was reached in London on January 21st, 1980.

It was a classic bubble, propelled by a series of unique events and conditions both in the U.S. and around the world. And when gold peaked in January of 1980, just as when stocks peaked in March 2000, the bulls, who had been right for so long and so profitably, saw it as just another 'dip' on the way to inevitably higher price plateaus.

At the top of the market, gold-bugs then, just like the "stocks for the long-term" crowd today, just couldn't grasp what had happened, that their incredible string of gains had actually run its full cycle. For the most steadfast among them to sell, even in an obviously weakening market, would be to deny and betray an investment choice that they had embraced with such fervor. Any trace of market sense had long since disappeared, replaced with a belief system not unlike a religion.

And for the next 19 years, the holders of precious metals saw a grinding retreat in prices during which their holdings became, well, less precious. But many of them held on to their stacks of Krugerrands while they grew older, and grumpier, and common stocks surged in price during the 1980's and 1990's while gold, seemingly against all reason, shrank in value year after year.

Is it any wonder that these moss-backed gold enthusiasts, after suffering nearly two decades of humiliating financial abuse, have become a fringe population of the paranoid and perpetually peeved, who see conspiracies everywhere?

For most of the past two decades their voices and influence faded from polite company. Today, however, the Internet has given these gold-bugs new forums in which they reinforce among themselves their insular and fearful apprehension of that great big scary world outside. Precious metals, conspiracies, and doom-mongering are their main themes, of course, and many of them still cherish that cabinful of dried food they bought for their Y2K survival party. An anonymous wag referred to the knights and damsels of one gold-bug chat-room as "the cheerleaders at the funeral of Western Civilization."

But give these old-timers their due - their negativity is rightfully earned from two decades of hard blows to their wallets. Here's wishing all good fortune to these dogged and persistent old gold-bugs – may they prosper when gold inevitably has its day in the sun again. The next price-cycle will enrich both gold's older-generation adherents as well as the newer generation that is attracted to gold by its universal appeal as something of value to spend your money on.

Because the timeless message of gold has always been scarcity, value, brilliance, permanence, heritage, riches, utility, status, and unalterable integrity. And at this early stage in gold's bull market, a growing number of new gold buyers are a younger generation of software engineers, doctors, lawyers, schoolteachers, small business owners, college professors, retirees, civil servants, tradesmen, laborers and capitalists alike who recognize the stability, permanence, utility, and simplicity of gold.

To these new buyers, simple common sense dictates that gold’s utility and unassailable status as the most convenient and undeniably timeless store of value known to the human race ensures that this ancient element will serve them well, particularly in times of economic and monetary uncertainty.

Today, a strong dichotomy exists between the rather shady and anti-social image of the gold-bug of yore, and our persistently popular image of gold itself. And despite the unfortunate company that gold sometimes keeps, our language and culture still refer favorably to "golden opportunities," "gold mines," "gold standard," "going for the gold," and the like. These uses evidence the fact that the element gold still holds a cultural status denoting the highest conceivable value and desirability.

History runs in cycles, and what was forgotten and out of date a few years ago is novel and fresh for the latest generation. For them, it is new, not old. This year in America, young men are once again sporting sideburns, straw hats were all the rage this summer, martinis are being shaken again, and music from the once-scorned composer Rachmaninoff plays in the background.

And people are taking notice of the latest thing in investments - a new, beautiful, and little bit scary metal known as gold, which has now outperformed common stocks for the second year in a row. .

 

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