Hold on to your gold fillings

With gold fever all over the media now, it's easy to wonder if the best days are over for the yellow metal. But that doesn't mean you should sell, says John Stepek.

Gold is everywhere at the moment. I've just been reading a piece on the BBC website about 'tupperware'-style parties in California's well-to-do Orange County area. Except here the women aren't lining up to be sold plastic food containers they're having a little get-together to sell off their unwanted gold jewellery.

Apparently, the buyer pays 60% of the spot price, then sells the gold in bulk to a refinery for 95% of the going rate. And the women have the chance to ditch embarrassing jewellery or unwanted presents from ex-boyfriends. What do they do with the money? Well, this is Orange County, so it's not being spent on the gas bill "many say they will spend the money they realise on treats a piece of art they couldn't otherwise justify or a meal for the family".

Of course, we're big fans of gold here at MoneyWeek. But we also realise the value of contrarian investing. When you see things like 'gold parties' being reported on the BBC, and whole new sections on investing in gold being set up on the websites of national newspapers, then it's easy to start wondering if the best days have come and gone for the yellow metal. Indeed, our regular commodities writer, Dominic Frisby (you can read Dominic every Wednesday in our free daily email, Money Morning), recently suggested when gold hit the $1,000 an ounce mark that readers might want to take some profits if they were the trading types.

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But the last thing that Dominic or I would suggest is that you sell your physical gold. The rising price may have drawn a lot of attention, but that doesn't mean the party's over for gold. You just have to look at what's happening in the world. Our cover story this week talks about the problems afflicting Europe and the eurozone. Meanwhile, Britain is officially embarking on quantitative easing printing money, to you and me and pumping yet more money into the banks. As for America if the stimulus packages weren't money enough, the financial sector there seems to have created its very own black hole in the form of giant insurer AIG, which gobbled up another $30bn this week as it made the biggest corporate loss in history.

By the time this financial crisis is over, the world will be awash with meaningless paper money. Judging by how they've coped with this phase of the crisis, I don't rate politicians' chances of dealing with the inflationary boom that'll follow as a consequence. I suspect the ladies of Orange County will be wishing they'd held onto their ear-rings rather than swapping them for a night out. Gold might well correct from here, but don't queue up to flog off your fillings just yet.

John Stepek

John is the executive editor of MoneyWeek and writes our daily investment email, Money Morning. John graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news. John joined MoneyWeek in 2005.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.