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What's up with gold?

Fear and greed, that's what.

The shiny stuff broke $1880 an ounce today, another record. That's making my Dad happy. He's been long gold a long time (which means he's owned gold for many years). Every time I call him up he asks me if I've bought any, which I have not. The old man's not such a dope after all, huh?

But that's beside the point. People around the office are a bit confused. They see the market settleing a bit, but gold is still syrocketing. What's driving it, they want to know, and is it on the verge of collapse?

The answer is, Fear. Fear of another recession in the US, and maybe across the globe. Fear that the Eurozone will implode and its members abandon the Euro; fear that the dollar will sink further and no longer be the global reserve currency; fear that the American economy will collapse under its debt load and render Treasuries worthless; fear that governments will fail to sort out their financial problems; fear that the stock markets will continue to fall, and asset values continue to erode; fear that prices of consumer goods will rise as commodities prices stamp higher: fear, in other words, that stuff will start cosing us more, at the same time as the money we earn will be able to buy less. My Dad fears all of these things, and on a week like this, it's hard to find fault with much of his reasoning.

Greed plays a part, too. People see the price of gold rocketing higher, and decide to hitch a ride. Many investors are piling into gold for this reason right now. And that's got people wondering if this is a bubble.

The answer is, maybe. If on Monday morning, the skies clear and angels start singing and the economy swings upwards, people will start selling gold. Hard. But if we keep bumping along the way we are now, with no end to our troubles in sight, then people will hold tight to their gold. The way they see it, in an uncertain world, it's the only thing you can rely on to hold its value.

About the author

Paddy Hirsch is a Senior Editor at Marketplace and the creator and host of the Marketplace Whiteboard. Follow Paddy on Twitter @paddyhirsch and on facebook at www.facebook.com/paddyhirsch101

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