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Evaluating the Wisdom of Buying Gold

August 17, 2012

Believing in gold does not derive from a fixed formula and it is not a managed process. 

- Frank Holmes, chief executive, U.S. Global Investors 



At the end of January 2008, I posted a discussion about how the book The Wisdom of Crowds by James Surowiecki could explain gold's price climb. The book's premise was basically that "large groups of people are smarter than an elite few."

Even before the height of the global crisis, there was a "wise crowd" of institutional and individual investors who had been buying gold as a safe haven from currency risks and the trillions of dollars invested in derivatives, and as a way to recycle petrodollars.

It's amazing to see the rise of gold since that initial post. On the day of the initial post, the metal was $925; now it's a little over $1,600. This means that a hypothetical $10,000 investment in gold bullion at the beginning of 2008 in gold would have grown to $17,500 today.

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