Reporting Jason DeRusha
MINNEAPOLIS (WCCO) — As the stock market continues to lose value, gold continues to soar.
While the Dow Jones Industrial average dropped more than 500 points Thursday, gold touched a record high, nearly $1685 an ounce, before settling in at a closing price of $1659/ounce. So, why are so many people investing in gold?
“There are two things going on,” said Bart Ward, CEO of Ward and Company, an Anoka investment firm that specializes in investing in gold mining and production companies.
“You have this safe-haven feeling. Some people believe that gold is the ultimate currency,” he said.
There was a time that every dollar in the U.S. was literally backed by an equivalent value of gold. There are those who believe the U.S. dollar and world currencies will collapse in a global crisis, leaving gold as the new currency.
“Then there’s the general flight to safety,” said Ward.
When markets tank, people still want to put their money somewhere other than just cash, commodities like gold, silver and oil are often choices. After all, if your gold loses much of its value, you still have a physical piece of gold.
“All the gold mined is still in existence above earth,” said Ward.
In 1980, gold was sky-high at a record price of $873/ounce. Then gold went out of favor and, for 20 years, stocks were king. It wasn’t until the last decade when gold started a slow, steady climb upwards.
“Wall Street hasn’t really jumped all over gold. You don’t have a lot of firms recommending gold. A lot of analysts are pooh-poohing it on the business networks,” said Ward.
However, Ward doesn’t think gold has hit its peak yet. If you take the 1980 and adjust it for inflation, Ward says there are those who think gold should be selling for $2200 to $2300 an ounce.
“I have a difficult time with that forecast,” he said. “Markets don’t give you what you want. They’re not rational.”
Still, all the attention and all the commercials about buying gold does help the market, according to Ward.
“Commercials play an important role, because they shape investor psychology,” he said.
However, just as there was a dot-com bubble and a housing bubble, there’s a chance that there will be a gold bubble.
“I think gold’s in a long-term bull market. It will top out at some point like all markets do. It could be pretty wild when it does. It may not be,” he said. “We’ll have to wait and see.”
Ward said you don’t have to buy literal gold coins to invest in the market. His firm invests in companies.
“You can invest in gold mining companies. This is what we do. We don’t own the physical metal,” he said.
So, is gold safer than stocks?
“It is as long as it goes higher. Nothing’s safe if it goes lower,” said Ward.