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Gold continued on its upward trajectory last week and closed above $1,500 per ounce for the first time on Thursday. Gold closed at record highs every day last week and it has gained 5.8% so far this year. Investors are turning to gold as a safe haven investment. Many of the major currencies have issues and potential concerns that make them less attractive to investors. The U.S. dollar offers a low interest rate and there are concerns about national debt. The euro faces the sovereign debt crisis and the likelihood that Greece will eventually restructure its debt. Investors are concerned about the impact of the rebuilding costs from the earthquake and tsunami on the Japanese yen. Gold is increasingly being viewed as a lasting store of value which will not erode in value the way that currencies can. There are many who believe that the upward trajectory is not sustainable and that the value of gold may be more subject to value change as a result of changes in investor sentiment. Gold may lose value if investors become more confident in the economic recovery or if governments continue to increase interest rates.

QUESTIONS FOR DISCUSSION:

  1. Do you consider gold to be a wise place to “park” money right now? What investments might represent better choices?
  2. Given that gold was trading at about $600 an ounce in 2007 compared to $1,500 last week, is gold an asset bubble ready to burst or will it hit $1,600 as some are predicting?
  3. Increasingly investors are now buying and holding physical gold rather than just holding positions in gold. What factors can explain this investment strategy?

SOURCE: Levitz, J. (2011, April 22). World is bitten by the gold bug. Wall Street Journal, pp. A1, A2. (Retrievable online at: http://online.wsj.com/article/SB10001424052748704889404576277361924031364.html)

Related video clip available at: Investing in Gold: Stocks vs. Metal. (Retrievable online at: http://video.cnbc.com/gallery/?video=3000017743)

Related video clip available at: Hold up to 10% on Gold to be Safe. (Retrievable online at: http://video.cnbc.com/gallery/?video=1896241778)

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