Gold fever is global. Should we trust it?

A handful of gold jewelry

TEXT OF STORY

TESS VIGELAND: It's hard to recognize an economic bubble when you're inside it. But even the wise men should be able to spot this one. I's not frankincense or myrrh, which leaves us this holiday season with a growing bubble of gold. An ounce of the shiny metal is trading for around $1,100.

It's been setting all kinds of price records for the last several months. And the question now, of course, is whether and how long that can continue. Many of you are writing in with questions about investing in gold. And I'm sorry to say they remind us of the days when you wrote in with worries about how the amazing housing market was going to pass you by.

We asked Marketplace's Jeff Tyler to get out the pennyweight scale and measure the merits of going bullish on bullion.


Jeff Tyler: In India, gold is so popular that even people who can't afford it know the price.

Krishna Deepakyadav: $16,500 rupees for 10 grams.

That's Krishna Deepakyadav. He's 28 and works at a hotel in the Hindu holy city, Varanasi. He believes prospects are good for gold prices

Deepakyadav: They never come down. Always going to high.

Krishna thinks his own prospects for a wife would improve, if he could buy gold.

Deepakyadav: When I am buying the gold, then I can get married.

I dodge bicycle rickshaws crowding the street to visit local gold dealers. Even with record high prices, the first shop I visited was so packed with customers buying gold that management didn't have time to talk.

I had better luck at the next gold merchant -- Vishwanath Alankar Mandir. Behind the counter, Sant Daylseth agrees that gold is important to Indian culture.

Sant Daylseth: There will be no marriages, no religious ceremonies or no parties without gold and silver.

And therefore...

Daylseth: The demand for gold is never-ending.

India is the world's largest consumer of gold. Some prognosticators see India's growing prosperity as a particularly good omen for the gold business. Daylseth agrees.

Daylseth: People are earning more, having more capacity to spend. So people will spend in gold.

Gold fever is nothing new in India. But it's just becoming vogue on the other side of the world.

In London, the mega-department store Harrods is selling bullion. Gold coins, but also bricks of gold. The kind they store at Fort Knox. Each brick weighs almost 30 pounds and costs almost a half million dollars. The perfect stocking stuffer!

Ad for gold investments: Gold has increased over 100...

Mark Levin on a Goldline ad:...Owning tangible assets like gold.

Laura Ingraham on a Goldline ad: There's only a finite amount of gold.

Back in the U.S. of A, gold mania is just picking up speed. Seems like everybody and their brother is pitching the stuff. Even Watergate conspirators.

Gordon Liddy: I'm Gordon Liddy. And I want to share with you something that will protect your future in a very solid, very real way. Gold. It's never too late to secure your future with gold.

David Moon: If a guy like Gordon Liddy is suggesting that you should buy gold, it's probably the time to do the exact opposite.

That's David Moon, president of Moon Capital Management, an investment-management firm in Knoxville, Tenn.

Moon: If these companies, who are selling the gold actually thought that it was a great investment, why are they selling the gold? Why aren't they taking the money they're paying Gordon Liddy and instead use it to go buy more gold at $1,100 an ounce. Instead, what they want to do is sell you gold at $1,100 an ounce.

But it's not just salesmen who are bullish about bullion. Some prominent Wall Street types have forecast higher gold prices ahead.

Jeff Clark is a writer and editor for Casey Research, which focuses on investments in natural resources. He says he wouldn't be surprised if gold prices fall a little bit in the short term. But long term, he predicts --

Jeff Clark: $3,000, $4,000, $5,000 an ounce could be realistic for a gold price.

In Clark's view, the appreciation of gold has nothing to do with demand from emerging markets, like India.

Clark: The reason we believe gold is going to go higher is not because someone wants to wear more jewelry in any particular year. It's because of what's being done to the dollar and because of pending inflation.

He worries that the Federal Reserve has printed money too freely and the U.S. government has borrowed beyond its means. Clark argues that gold is the best hedge against inflation.

It's an argument that investment advisor David Moon has heard for a long time.

Moon: I had a professor who said that 10 to 15 percent of every investor's portfolio should be invested in gold as a hedge against inflation.

How good was that advice?

Moon: Looking back over the last, almost, 30 years, gold was a terrible inflation hedge during the entire period, except during the last three years.

Since 1980, Moon says the Consumer Price Index, which gauges inflation, rose almost three times as much as gold. To hedge against inflation, Moon prefers the stock markets.

Moon: From September of 1980, gold increased 57 percent. nd from that same time period, the Dow Jones industrial average was up 989 percent.

Obviously, unless you're a hard-core survivalist expecting doomsday, you wouldn't want to put all your investment money in gold. But let's say you wanted to buy a little bit. You have some options. Clark says you could buy a certificate for gold stored in a mint in Perth, Australia. Or...

Clark: You can also buy paper forms of gold, just like you would a stock.

Those are known as exchange-traded funds, or ETFs. But for his own investments, Clark says he favors the coins.

Clark: What you really want to have is one-ounce gold coins. They're easy to buy, easy to sell. They're easily recognizable. They're common. You're not going to get a question from someone when you go to sell them some day.

He says a coin should cost about 5 or 6 percent above the market price for gold.

The U.S. recently re-released the one-ounce buffalo gold coin. I hear they make great gifts. Mom, if you're listening, that was a hint.

In Los Angeles, I'm Jeff Tyler for Marketplace Money.

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