The Attack on Gold Escalates: NYT Columnist Wants to Stop the "Gold Bubble"

08-31-2011 • EconomicPolicyJournal.com

They ignored the internet bubble and the housing bubble, but they are now talking about stopping the "gold bubble". In NYT, Steven M. Davidoff writes (my emphasis): ....it is sometimes referred to as the barbarous relic. You can’t eat gold. Its industrial uses are limited. If someone else doesn’t assign the same value to gold that you do, you are out of luck. For those who predict it will be valuable if society completely collapses, guns and canned goods might come in handier... The commodities regulator, though, could force American exchanges to further raise margin requirements, reducing leverage and the ability of investors to buy more gold. The agency would also have to act to limit the gold acquired individually and by the E.T.F.’s. All of these measures would have to be coordinated and put into effect on a global basis. ...if regulators are going to stop the next bubble, they will need to act aggressively. Of course, they shouldn’t act in every circumstance, but when we see volatility and speculation as is the case of gold, acting to curb these forces through limiting leverage in cooperation with international regulators would be a prudent course. This would ensure that if a crash does come, it does not have aftereffects on banks and other institutions. Even if the Commodity Futures Trading Commission is hesitant to take such steps, it could, as an initial foray, take to the media to try to “talk down” the speculation. Otherwise, we’re left hoping, without much basis, that people have learned that this time will not be different, something not much in evidence in the case of gold. Here are a few things Davidoff doesn't get (or doesn't want to publicly admit) about gold. It is an alternative to paper money as a medium of exchange. Given that governments around the world have mismanaged their currencies and debt, it is extremely prudent for people to own gold, as a hedge against further mismanagement. Only a small percentage of investors own gold, but the number is growing.