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17 April 2024

Should you join the 2024 gold rush?

The metal beloved of pirates and 1930s governments is booming. But investing in a volatile commodity always carries risk.

By Will Dunn

From 1960 to 1990 John Updike wrote four novels charting the life of his best-known character, Harry “Rabbit” Angstrom, from his promising beginnings as a basketball player to his retirement in Florida. The third novel, Rabbit Is Rich, takes place at the end of the 1970s, when inflation reached double digits: “The great American ride is ending,” the novel begins. “People are going wild, their dollars are going rotten, they shell out like there’s no tomorrow.” So Rabbit and his friends at the golf club do what a lot of people did in that time: they buy gold. “The beauty of gold,” he tells his wife, “is it loves bad news.”

Many young Chinese people feel the same way. China’s economy is faltering – the country has deflation in consumer prices, which isn’t as fun as it might sound, and a deep slump in consumption and the property market – but one product has exploded in popularity: gold beans. Sold in glass jars from jewellery stores, these small chunks of the precious metal – which this month reached a record price of $2,365 an ounce – offer a tangible store of value to amateur investors. One teenage investor told Bloomberg News that it is “impossible to lose money from buying gold”. Like Rabbit Angstrom, they see gold as an insurance policy against a possible economic downturn.

In the US and UK, on the other hand, people are buying gold because they think good news is on the way: gold prices are thought to typically move in the opposite direction to interest rates, so the idea that rates may fall has given some investors a renewed enthusiasm for coins, bullion and the exchange-traded funds that track the price of gold.

Nor is this only a “retail” phenomenon: central banks are also buying up large quantities of gold. The People’s Bank of China bought four and a half tonnes last month, while the central banks of Turkey, India and Kazakhstan have also added significantly to their reserves. This is partly to do with the sanctions and asset freezes America can impose on other countries using the dollar: gold, the “barbarous relic”, as Keynes called it, has no such allegiance.

Gold also holds a particular significance for some politicians, especially Donald Trump, who is an enthusiast not only for tacky gold furnishings and ugly gold buildings, but also for the “gold standard” – the period during which the dollar was pegged to the value of gold. Trump and the oddballs who surround him believe that precious metals should once more be the basis for the international monetary system. For some Republicans and libertarians, to buy gold is to make a political investment in hard, manly money, not the wet little numbers that technocrats put on computer screens.

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There’s general agreement that if Trump did reimpose the monetary policy of the 1930s (he’s crazy enough, but probably incapable) then gold prices would increase very significantly. They’d have to, because America’s lenders would be able to request payment in gold, and America’s national debt today ($34.6trn) is more than twice the value of all the gold that has ever been mined.

Does the gold price have further to climb, then? Should you buy in to the gold boom? I have absolutely no idea, and neither does anyone else. But what recent years have shown is that gold’s reputation as a safe haven in dicey times isn’t actually that reliable. In real life, had Rabbit Angstrom held on to his gold through the early-1980s recession, he would have lost money. Gold makes no income and pays no dividends: its only value (unless you can turn it into luxury goods or electronics) is what other people will pay for it as an investment. As with any investment based on momentum, a large volume of headlines about a price boom may mean that the easy money has been made.

Gold prices can and do fall. Gold is physically hard to dissolve but confidence in it is much less durable. Don’t put money into a volatile commodity unless you can afford to lose some of it.

[See also: The housing market was supposed to crash, so did it or didn’t it?]

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This article appears in the 17 Apr 2024 issue of the New Statesman, Israel vs Iran