5:49pm

Mon August 8, 2011
Economy

Market Turmoil Fuels Gold Rush

Originally published on Thu January 10, 2013 11:16 pm

The stock markets may be sinking, but the price of gold is on the rise, topping $1,700 an ounce Monday. Economists say the spike in gold is a sign that investors are getting nervous.

Ken Rogoff, an economics professor at Harvard University, says gold is kind of like an economic mood ring: When the price is relatively stable, the economy is cool, calm and collected.

But when the price of gold soars to levels like Monday's high, it's a sign of panic, he says. "People are scared right now," he says.

Rogoff says investors turn to gold as a safe haven when other forms of investment — like stocks, Treasury bills and even cold hard cash — become unpredictable.

And that increased demand from gold investors drives up prices.

"For a very rich individual or a very rich sovereign wealth fund, buying gold is the equivalent of stuffing cash under a mattress," he says.

Fueling The Rush

And those mattresses are getting bulkier as all signs point to continuing uncertainty about the economy.

Rogoff says Standard & Poor's downgrade Friday of the U.S. government's credit rating has helped to fuel this latest gold rush.

"Foreign central banks hold trillions of dollars in Treasury bills and cash," Rogoff says. "And they're looking at each other now and saying, 'Wait a second. Uh, Treasury bills are only AA+ now? They don't get a triple A, the highest rating?' "

Which makes buying gold coins and gold bullion that much more alluring.

"If we're ever invaded by aliens, I don't know if they would take gold. But almost everyone else will," he says.

Including people like Brian Diener, who owns a jewelry store in Washington, D.C., where he sells rings, diamonds, fine crystal, silver and, of course, gold.

"That will never stop — always gold," he says.

Diener has a wooden box he keeps in the back room of his store filled with gold necklaces and bracelets that he's bought from estate sales and other sellers.

He estimates all the jewelry is worth about $200,000.

Climbing Prices

Gold prices have been climbing since the recession began in 2008, and Monday's price of more than $1,700 an ounce is a record high if you don't adjust for inflation.

The all-time high was set in 1980 when gold — in today's dollars — hit more than $2,400.

Still, Diener says the recent rise in prices has brought in more customers eager to sell their gold and cash in.

"I just have to be more on top of what the price of gold is daily," he says. "Buying and selling it, and melting some gold, so you can have enough cash or money to buy more."

And now is the time to buy, he says.

"The bubble will burst one day. I don't see it in the near future," he says.

And Harvard's Rogoff predicts that the near future could be in a couple of years.

But he says he's wouldn't be surprised if gold prices hit $2,000 an ounce before they plummet back down below $1,000.

In the meantime, Rogoff says investors are hoping gold will keep its glitter.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, host: Many investors without the inclination or the stomach lining to wait for stocks to rebound are turning to gold and that's driving the price up - way up. It topped $1,700 an ounce today. NPR's Hansi Lo Wang has that story.

HANSI LO WANG: Ken Rogoff is an economics professor at Harvard University and he says, think of the price of gold as a kind of mood ring for the economy. When it's relatively stable, that means the economy is cool, calm, and collected. But when the price of gold soars to levels like today's high...

KEN ROGOFF: This is panic. People are scared right now.

WANG: Rogoff says investors turn to gold as a safe haven when other forms of investment, like stocks, Treasury bills and even cold, hard cash become unpredictable. And that increased demand from gold investors drives up prices.

ROGOFF: For a very rich individual or a very rich sovereign well fund, buying gold is the equivalent of stuffing cash under a mattress.

WANG: And those mattresses are getting bulkier as all signs point to continuing uncertainty with the economy. Rogoff says the federal government's credit rating downgrade by Standard & Poor's on Friday has helped to fuel this latest gold rush.

ROGOFF: Foreign central banks hold trillions of dollars in treasury bills and cash and they're looking at each other now and saying, wait a second. Treasury bills are only double A-plus now. They don't get a triple A, the highest rating.

WANG: Which makes buying gold coins and gold bullion that much more alluring.

ROGOFF: If we're ever invaded by aliens, I don't know if they would take gold, but almost everyone else will.

WANG: Including people like Brian Diener.

BRIAN DIENER: Have any gold you want to sell?

Unidentified Woman: I might have some. I think I have.

DIENER: Price of gold hit a record today.

Unidentified Woman: Oh, really?

DIENER: Yeah.

Unidentified Woman: I think I have something in mind.

WANG: Diener is chatting up a customer in his jewelry store in Washington, D.C., where he sells rings, diamonds, fine crystal, silver...

DIENER: And gold. That will never stop. Always gold.

WANG: He carries out a wooden box from the back room of his store and inside, there are gold necklaces and bracelets he's bought from estate sales and other sellers. That sound you hear, says Diener, is the golden sound of $200,000. That's how much he thinks all this old jewelry is worth. Gold prices have been climbing since the recession began in 2008 and today's price of more than $1,700 an ounce is a record high if you don't adjust for inflation. The actual all-time high for gold prices was set in 1980, when the price of gold in today's dollars hit more than $2,400. Still, Diener says the recent rise in gold prices has brought in more customers eager to sell their gold and cash in.

DIENER: I just had to be more on top of what the price of gold is daily, buying and selling it and melting some gold, so you can have enough cash or money in the bank to buy more.

WANG: And now is the time to buy, Diener says.

DIENER: The bubble will burst one day. I don't see it in the near future.

WANG: That near future could be in a couple of years, predicts Ken Rogoff, but the Harvard economist says he wouldn't be surprised if gold prices hit $2,000 an ounce before they plummet back down below 1,000. In the meantime, Rogoff says investors are hoping that gold will keep its glitter. Hansi Lo Wang, NPR News. Transcript provided by NPR, Copyright NPR.