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Gold, Unloved

Oh… I know I’m unloveable
You don’t have to tell me
I don’t have much in my life
But take it- it’s yours
-The Smiths, “Unloveable”

Yesterday, the price of gold surged to its highest level ever, not accounting for inflation. An ounce of gold for February delivery climbed as high as $884 on the New York Mercantile Exchange, surpassing the previous record of $875 set back in 1980, and later settled at $880.30, up $18.30. You might never have known that from the mainstream media, though. While a number of financial news sites I came across yesterday mentioned the historical occasion, the story was mostly tucked away. Furthermore, when it did manage to make the headlines, news services made sure to note that the new price level was nowhere near the inflation-adjusted 1980 high of nearly $2,200 an ounce. For example, the USAToday headline said, “Gold hits record high, but is below inflation-adjusted peak.” I’m not the only one who noticed this lack of attention. Earlier today, The Prudent Investor featured a post entitled, “Gold Hits A Record- You Would Not Know From The WSJ.” Toni Straka wrote:

You would not know from Wall Street Journal online. Their only reference to the strong show of gold prices counts a meager 13 words, hidden in the 15th paragraph of Peter A. Mckay’s report on today’s markets: Gold futures hit a new record high, up $20.8 to $882.80 an ounce. (You have to pay for this information.)

I am a paying customer of the Journal, and while today’s print edition talks about the gold story, it is located 12 blurbs down under “What’s News,” after McGraw-Hill cutting 611 jobs and Starbucks shares jumping 8.1% on the return of a former CEO. Here’s what the publication said about the precious metal’s price surge:

Gold climbed $18.40 to $878 an ounce amid speculative buying and a weaker dollar. Crude rose $1.24 to $96.33 a barrel. C14

Ouch! Gold can’t even get its own headline. Instead, it’s forced to share space with crude oil. Readers had to go to the last page of the “Money & Investing” section to read the rest of the story, which to be fair, was more comprehensive.

Even before gold reached a new record price, the media was slow to offer any love towards the yellow metal. Consider the January 14 issue of BusinessWeek, which arrived in my mailbox several days ago. In the “Numbers” section, the headline reads, “HEADLINES ASIDE, GOLD HAS LOST LUSTER.” Yet, the piece begins with, “Gold soared to $859 an ounce in midday trading on January 2, which is above its highest-ever close of $850.”

Why all this indifference? What did gold ever do to you? From my research, there appear to be a couple of reasons as to why the mainstream financial press isn’t going bananas over the metal. I’ve already named one. The price of gold is still below its inflation-adjusted peak of around $2,200 in 1980. Futhermore, as BusinessWeek pointed out, in 2007 gold’s returns were less spectacular than other commodities, such as corn and oil. The returns on corn last year were 122%, crude oil 77%, and gold only 30%, according to data provided to BusinessWeek from Bloomberg Financial Markets. Another reason is that while fund investors pour money into the market, demand is weaker from the retail sector and individuals, who were responsible for driving the gold price to its 1980 high. Jon Nadler, senior analyst at Kitco Bullion Dealers, told the Associated Press yesterday that, “They’re not, apparently, lining up around the block like they did in January 1980.” Dealers in Manhattan’s midtown Diamond District can attest to the lack of interest in gold’s surging price. From a different AP piece yesterday, Michael Pacicco runs his family-founded Pacicco & Pacicco Inc. from a windowless, second-floor shop on West 47th Street, its display cases filled with custom-made gold pieces from crosses to bracelets. A few hours after gold topped at $879.40 an ounce, Pacicco said no one was rushing to sell gold jewelry in the Diamond District- compared to the long lines of people winding around the block to Fifth Avenue hawking their jewels in 1980, when gold hit $875 an ounce. Some even brought their gold fillings back then, Pacicco said. He added, “I don’t think people have as much gold now as they did then.”

It’s possible that Mr. Pacicco is correct. We’ve been taught that gold is a “barbarous relic,” only coveted by survivalist “nuts,” and not worth including in our investment portfolios because it pays no interest and is un-American like Peter Schiff (just kidding). We’ve also been conditioned to think that gold is a “rotten” and “dangerous” investment by salespersons calling themselves investment “advisors” and personal finance “gurus,” who seem to forget that different economic and investment conditions existed in the United States prior to November 1982, when the 25-year economic boom began. Do these individuals have to be reminded that the U.S. stock market basically went nowhere from 1966 until 1982? And gold? It went from $35 an ounce in 1966 to $850 during that same time period.

Unloved as an investment, gold continues to add new performance milestones as time marches on:

August, 1999- Gold falls to low of $251.70 on worries about central banks reducing reserves of gold bullion and mining companies selling gold in forward markets to protect against falling prices.
October, 1999- Gold surges to two-year high of $338 after agreement to limit gold sales by 15 European central banks. Market sentiment toward gold begins to turn more positive.
February, 2003- Gold reaches 4½-year high on safe-haven buying in runup to conflict with Iraq.
December, 2003 to January, 2004- Gold breaks above $400, reaching levels last traded in 1988. Investors increasingly buy gold as risk insurance for portfolios.
November, 2005- Spot gold breaches $500 for the first time since December, 1987, when spot hit $502.97.
May 12, 2006- Gold prices peak at $730 an ounce, the highest level since January, 1980, with funds and investors pouring money into commodities on a weak dollar, firm oil prices and political tensions over Iran’s nuclear ambitions.
June 14, 2006- Falls 26% to $543 from its 26-year peak after investors and speculators sold out of commodity positions.
January 2, 2008- Gold breaks above its record high to trade at $859.30 per ounce.
January 8, 2008- An ounce of gold for February delivery climbed as high as $884 on the New York Mercantile Exchange, surpassing the previous record of $875 set back in 1980, and later settled at $880.30, up $18.30.

Source: ReportonBusiness.com, January 9, 2008

(Note: The author disclaims any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)