Is gold a “bubble” because it has now become popular or is there still worthwhile upside? As a contrarian, it is more difficult to reconcile the metal’s recent popularity with the prospect of future rewards. Is the investment consensus always wrong, or can it be right for extended periods? Does the perceived flood of new investment mean the jig is up? The ability to remember is sometimes the contrarian’s worst enemy. Recall that Tocqueville launched its gold effort in 1998 when the metal was friendless. Central banks were dumping the metal in favor of dollar-denominated assets. In a moment of charity to contrarian investors, the UK dumped most of its bullion reserves at prices below $300/ounce in 1999. Mining companies furiously and confidently hedged their future gold production at unheard of (and unexpected) prices well above $300/ounce. The Financial Times published the obituary December 13, 1997: “The Death of Gold” (see Appendix). The Dow Jones Industrial Average was valued at more than 40x an ounce of gold. Credit spreads, a proxy for risk tolerance, were the skinniest in 30 years. Risk—in those heady days, investors couldn’t get enough of it. Rodney Dangerfield got more respect than the metal.
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