At the moment, it holds a particular attraction, given Americans’ worries in the wake of the meltdown of global financial markets and the falling value of the dollar. Trading and owning gold have also never been easier or more frantic, thanks to the Internet.
The usual argument against retaining gold is that its day is past. Once it was useful as a hedge against inflation that would hold its value when paper currencies did not. Now financial markets have their own sophisticated ways, using exotic derivative securities, to hedge against inflation.
Gold's supporters argue that tying the dollar to gold provides discipline for central bankers and other officials who are otherwise too often inclined, they say, to permit lax government spending policies and high money supply growth, both inflationary factors.
Gold's recent historic highs were underpinned by a rush of mainstream investors, including hedge funds, commodity-based mutual funds and exchange-traded funds. After reaching a nominal record of $1,420 a troy ounce in December, gold prices fell nearly 6 percent in January 2011.
The extent to which the new wave of capital remains invested in gold will determine if the recent spike is just another anomaly or the onset of the second coming of the great gold bull market that the true believers have been calling for since the price of gold crashed a quarter-century ago.