Gold Boom or Bust? (Or Both?)

Everyone in our business has been aware of the rise in precious metals prices. In 2007, gold prices opened 50 percent higher than they were two years ago and 130 percent higher than just five years ago. While gold is particularly important in the jewelry business, all precious metals have seen serious increases. Even palladium, which became a new alternative white metal in the last couple of years, has seen sharp increases for two years after a long period of decline. (See Chart A, below.) It would be easy, and wrong, to make comparisons with 1980, when last we had an explosive increase in gold prices. Serious inflationary pressures back then caused a rush to buy hard assets—art, real estate, antiques, diamonds, and especially gold. Speculative gold buying sparked a rapid escalation in prices through late 1979, peaking at $850 on Jan. 21, 1980. The next day, gold was at $737, and it
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