Gold: Will the bubble burst?
See “Make way for the gold bugs” (business, page 11)By Jon Fernquest
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Read this article syndicated from the New York Times that, rather unusually, has something positive to say about gold.
While you are reading, underline every place in the article that talks about the effect that gold can have on the economy or the economy can have on gold. The questions that follow provide a guide for your reading (See answer key at end for answers to all questions):
1. When was the last time that the price of gold was as high as it is now?
2. What kinds of mainstream investors have started to invest in gold?
3. What function is gold performing in the portfolios of mainstream investors who have started investing in gold recently?
4. If these mainstream investors stay with gold what may happen?
5. When and how did James Sinclair profit from gold and become famous?
6. What does James Sinclair do now besides trade gold?
Check out the Wikipedia pages on gold as an investment, as a metal, and as a standard for a monetary system.
[Check back shortly for more links]
Vocabulary (in discussion above)
shrewd - a shrewd business person is able to use their understanding of a situation to gain an advantagesyndicated - a newspaper article bought from another newspaper
Vocabulary (in article)
make way for – move away to another place so that people can pass, here it means many people are becoming interested in goldgold bugs – people who are obsessed with gold, as if a bug bit them and they became feverish (See Wikipedia:Gold_bug)
true believers – people capable of believing strongly in the future, Eric Hoffer argued in his book The True Believer that, "mass movements appeal to the frustrated; people who are dissatisfied with their current state, but are capable of a strong belief in the future and to people who want to escape a flawed self by creating an imaginary self and joining a compact collective whole to escape themselves." (See Wikipedia:The_true_believer)
indictment of x – claim that x is bad
contemplating – thinking about something carefully, for a long time
cufflinks – small jewelry worn by men to hold the cuffs at the end of their shirt sleeves together, not used as much as they used to be (See Wikipedia:Cuff_linkfor photos)
monogrammed shirt – the letters of a person’s name sewn on their shirt (See Wikipedia:Monogram)
a laggard – falling behind, not keeping up with the rest of the group
jumped on the bandwagon – begin doing something popular that everyone else does
investment banks – banks that help companies with issuing new stocks and bonds (IPOs), mergers and acquisitions, and corporate restructuring
(See Wikipedia:Investment_bank and Wikipedia:Initial_public_offering)
J.P. Morgan – one of the largest American investment banks (See Wikipedia:JPMorgan)
Goldman Sachs – one of the largest American investment banks (See Wikipedia:Goldman_Sachs) a bull market – a long period of time when stock prices are increasing rising in faster than they usually do (See Wikipedia:Market_trends)
bullish – you feel that there will be a bull market in the future
barometer – helps you predict the direction of the economy, just like a barometer helps you predict the weather by measuring air pressure
mutual funds – an investment fund that invests in many stocks, bonds, options, commodities, or money market securities, investors can buy shares of this fund like they buy stocks (See Wikipedia:Mutual_fund)
hedge funds – an investment fund that makes riskier investments such as derivatives and commodities in hope of greater returns (See Wikipedia:Hedge_fund)
a spike – a jump, goes up and down suddenly
an anomaly – different from the normal or expected
a correction – after moving in one direction for too long, a price moves in the other direction, by using the word correction
an asset bubble – when the price of an asset like real estate, gold, or stocks increases to a value that is more than it is worth, like a bubble bursts the value of the asset will suddenly decrease one day (See Wikipedia:Economic_bubble)
a fad – an activity or topic that becomes popular for a short time, then people lose interest in it quickly (See Wikipedia_List_of_fads_and_trends)
a small clutch – a small group (usually said of a group of birds, for example a clutch of pigeons)
just desserts – you get what you deserve (Thai: Som nam na), if you do something bad to someone, then something bad will happen to you in return
unwavering – never changing, always the same
mystical – involving spiritual powers that most people do not understand
devotion to – you continue to do something because you believe in it
bulwark – protection
insidious – an unpleasant or dangerous thing growing gradually without being noticed
renown – fame, being well-known and famous
a hoard – something hidden because of its value
Shangri-la – a paradise, a place that is very nice to live in(Shangri-la was a peaceful kingdom in the Himalayan mountains in an old black and white movie)
cartoons that he commissions – cartoons that he pays someone to draw
to proselytize – to try to persuade someone to believe in something you believe in like a religion
depredations – actions that harm and damage something or someone
restrictive covenants – agreements to follow certain rules like converting paper money to gold if people demand it, this means that the money is truly 100% backed by gold
unfeasible – not possible
deflationary – prices go down, opposite of inflationary
the creeping impact of inflation – the slow effect of inflation, one of these is interest rates that increase to match peoples' expectations about inflation in the future
a store of value – something to save the money or wealth you make, so that you don’t have to spend it immediately
underpinned – supported, strengthened, and helped succeed
mainstream investors - typical and normal investors
prudent - sensible and careful
a liquidity boom - when the value of stocks rise, people are wealthier and have more cash to spend, a tighter money policy and higher interest rates can end this
doctrinaire - has fixed ideas that they try to force on other people
bullion - gold or silver bars
Answer key:
Effects that gold can have on the economy and the economy can have on gold:
a. “…the 1970’s, when inflation, a weak dollar and an oil spike driven by turmoil in the Middle East propelled gold to a high of $875 an ounce, or more than $1,800 in current dollars after adjusting for inflation”
b. “Gold is a barometer of the common stock of a country, and right now gold is sniffing out weakness in the management of the United States as a business.”
c. “…many investors say that given gold’s sharp recent climb, a correction would not be surprising. It’s another asset bubble, they say.”
d. “a moral bulwark in a corrupting sea of paper money, credit, and what they see as insidious financial instruments.
e. “in 1971..President Richard Nixon severed the dollar’s link to gold”
f. “a return to the gold standard..would be...deflationary”
g. Gold advocates complain about the “creeping impact of inflation.”
Answers to questions:
1. Twenty-five years ago.
2. Investment banks including Goldman Sachs and J.P. Morgan, hedge funds, commodity-based mutual funds, and other exchange-traded funds.
3. Gold is a “hedge against inflation” and a way to diversify one’s portfolio in bad economic times
4. There may be a long bull market like there was 25 years ago.
5. Sinclair sold 900,000 ounces of gold at the height of gold price bubble in 1980 and made a profit of $18 million.
6. Sinclair owns a gold exploration company in Tanzania and also “proselytizes about the virtues of gold” using a web site (jsmineset.com), books, DVD lectures, and cartoons.
