Why be so bullish on gold?
'All of which gives us pause and makes us more than a bit wary. And so, oddly, does the brisk surge in gold to a four-month high. We say oddly because bullion has been one of the few investments that we've written about this year with consistent enthusiasm. Everything that was wrong with the global financial system seemed to us to add fresh luster to the yellow metal. More than ever, it seemed a reasonably safe harbor in a debt-laden world where paper currencies are being routinely debased to prop up failing economies. It didn't hurt, either, that the gold-mining stocks have been conspicuous laggards for quite a spell.
What touched off the latest pop was a mess of publicity about hedge-fund operators John Paulson and George Soros piling into bullion in the second quarter via one form or another. That inevitably was the signal for the copycat hedge funds, whose numbers are legion, to follow the big guys' ravenous accumulation of the metal, although we recall that Paulson hasn't enjoyed an untarnished investment record of late. Moreover, India, a major buyer of gold, has cut back sharply this year in reflection of its economic disarray and other woes.
Bullion remains some $300 an ounce below the all-time high of $1,921.15 set in September of last year. Although it has racked up gains for 11 years in a row, it has also suffered some wobbly going earlier this year, dogged by hedge-fund unloading and fretting market technicians as well as the lure to clueless investors of Facebook and its ilk. Once the day traders take their profits from last week's burst upward and the copycats have their fill, we'd expect the gold rush to subside a trifle and set the stage for another run to a new peak.
In short, although we wish the flighty hedge funds had kept their sticky hands in their pockets, we're still bullish on bullion.''