When we first started talking about gold in MoneyWeek back in 2001, no one was remotely interested. One of my closest City friends told me to stop embarrassing myself with my odd obsessions. Gordon Brown cared so little about the metal that he sold 400 tonnes of it at prices knocking around 20-year lows with, it seems, almost no thought at all.
Today, everyone is interested. Look at the most-read list on the back of the FT from Wednesday: two of the five most popular stories were about gold. And the most amazing thing? One discussed comments from the president of the World Bank, Robert Zoellick, in which he suggested that gold should perhaps from part of a new "co-operative monetary system". Yes, one of the world's top financial officials appears to fancy the return of a mini gold standard, or at least a system that "references" gold as it goes.
At the same time, the second round of quantitative easing (QE2) means a wave of newly created money is set to pour into global asset markets, undermining paper currencies as it does so.
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And inflation is clearly winding its way back into the economic systems of both emerging and developed markets. Witness the fast rises in food and energy prices over the last few months. British food prices were 9.8% higher last month than a year ago. Note too the beginning of an inflation capitulation from the Bank of England.
For the last few years, Mervyn King has insisted that we ignore the consumer price inflation (CPI) numbers on the basis that they didn't reflect reality. Higher-than-expected inflation was, he kept saying, a matter of a few one-off factors, none of which would persist. But they have. This week he admitted that UK inflation won't fall back below 2% in the near future either: the Bank now expects CPI to head towards 3.5% over the next few months and has raised its forecasts into 2012.
Add it all up and it's no wonder the gold price has soared above $1,400 an ounce and is hitting regular new highs in nominal terms. But now that everyone else gets gold, and now that it's risen going on seven-fold since we bought it, is it time we changed our tune? Should we sell? We think not. Let's remember why we started holding gold in the first place. We bought because we were worried about the value of paper currencies. And in a time of uncertainty we wanted to hold something that we knew had a history of maintaining its real value. That hasn't changed.
The ultimate outcome of QE2 (or "high-grade monetary heroin" as one US observer calls it) has to be inflationary, whether it works as the Fed would like it to or not. So we're just as worried about paper currencies as we were a decade ago. As for uncertainty we see even more of it now than we did in the wake of the dotcom bubble. That means gold has to remain a core part of our wealth-preservation strategies. We'll review things again at $2,000.
