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Sept. 7, 2011, 12:00 a.m. EDT
By Brett Arends, MarketWatch
NEW YORK (MarketWatch) "” "The smart money got out of gold last year."
That's what someone at one of the major Wall Street banks told me.
Last year!
Gold /quotes/zigman/661658 GC1Z -3.27% was already around $1,200 an ounce. Today it's $1,877. Some smart money.
(Stop the presses: Platinum has now fallen below gold "” trading at $1,850 an ounce. Typically it has cost much more than gold, and jewelers will tell you platinum jewelry generally sells for twice that of gold.) How high will gold go? I have absolutely no idea. But it's great insurance at times like this.
Stock markets are panicking about Europe's sovereign-debt crisis. Again. This has been going on for two years, with no end in sight.
The global search for safe havens has strengthened the Swiss franc so much that the Swiss are taking steps to rein their currency in, Dow Jones Newswire's Vincent Cignarella reports on the Markets Hub. (Photo: Reuters.)
Last month markets were panicking about America's sovereign-debt concerns. That followed the debt-ceiling showdown between President Barack Obama and the Republicans, and Standard & Poor's momentous downgrade of U.S. Treasury bonds.
There are real similarities between Europe and the United States.
"¢ Our populations are aging.
"¢ Our economies are sluggish.
"¢ We are struggling under mountains of private and sovereign debt.
"¢ We are running massive budget deficits just to keep our economies growing.
"¢ If we try to balance our budgets, our economies will stall. If we don't, markets will panic about our unsustainable debts.
According to the International Monetary Fund, America's gross federal debt is about 100% of the economy. That's higher than crisis-stricken Portugal (91%), and much higher than Spain (64%). It's lower than Italy (120%) and Ireland (114%), but these are differences of degree rather than kind.
Whether one believes any government's numbers is another matter. It's hard to imagine any of them would pass a strict scrutiny under Sarbanes-Oxley.
This week Obama will unveil some kind of "jobs package" to a joint session of Congress. If it's small, it won't work. If it's big, it will freak the markets. It's probably moot anyway. The only thing Republicans might be minded to pass would be a tax cut.
In the end, it looks like the only way out for Western governments is to print more money and hand it out.
Helicopter Ben is putting on his flying goggles again.
I have absolutely no idea what gold is "really" worth per ounce, which puts me in good company. Last winter I asked Jim Grant, the legendary editor of Grant's Interest Rate Observer and one of Wall Street's most distinguished figures, his opinion. He didn't know either "” and he's a gold bug. He said gold was effectively a bet against central bankers. He surmised that their reputations had not finished sinking, so gold had not finished rising. He was right, and he still looks right today.
The SPDRs Gold Trust exchange-traded fund /quotes/zigman/41663/quotes/nls/gld GLD -3.68% , which buys the equivalent of a tenth of an ounce, is $181 a share. The Central Fund of Canada /quotes/zigman/17018/quotes/nls/cef CEF -2.65% , a closed-end fund that has half its assets in gold, the other half in silver, is $25.87 a share.
(Gains on Central Fund stock are taxed at long-term capital gains rates, which are 5% or 15%, as opposed to the 28% tax rate on gold.)
There are other ways of playing precious metals, too "” such as the ETFS Physical Platinum exchange-traded fund /quotes/zigman/582396/quotes/nls/pplt PPLT -2.06% and gold mining stocks, such as those owned through the Market Vectors Gold Miners ETF /quotes/zigman/420125/quotes/nls/gdx GDX -0.70% . (I own GLD, PPLT and a mining fund.)
If you don't own gold, and you are terrified of jumping in now, the sensible approach may simply be to buy in stages in small amounts. That way you don't buy a large amount just before it corrects, and you don't sit on the sidelines.
A lot of people have been sitting on the sidelines"¦ at least since "the smart money got out," oh, two years ago.
Brett Arends is a senior columnist for MarketWatch and a personal-finance columnist for the Wall Street Journal.
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S... Expand
Brett Arends is an award-winning financial columnist with many years experience writing about markets, economics and personal finance in Europe and the U.S. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He was educated at Cambridge and Oxford Universities, and has worked as an analyst at McKinsey & Co. He is a Chartered Financial Consultant (ChFC) and Accredited Asset Management Specialist (AAMS). His latest book, "Storm Proof Your Money," has just been published by John Wiley & Co. Collapse
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