Last Updated Jan 17, 2010 4:47 PM EST
They showed gold to its best advantage by cherry-picking economic data and lessons from history. An evenhanded look at the evidence suggests, however, that selling gold at around a grand an ounce makes more sense than buying it and that selling shares of mining companies is an even smarter move.
Fringe-dwellers in the pro-gold camp express skepticism toward any asset made of paper. They find the world a perilous place forever on the verge of anarchy and hyperinflation, where gold will be the only recognizable item of value, except maybe for a Rottweiler or a bazooka.
Even the more serious, reasonable bulls are prone to fits of hyperbole. Andy Sutton, writing on the Seeking Alpha website, for instance, calls gold "the opportunity of a lifetime," pointing to the weak dollar, the prospect of runaway inflation as the U.S. fiscal deficit balloons and a stock market that he contends is rallying only within a prolonged bear market.
If this is a good time to sell gold, it should be a better time to sell mining stocks. The mining industry is notorious for its poor business acumen, which results in weak profit margins, an inability to benefit fully from high gold prices (due to higher production costs) and weak share price performance.
A look at long-term returns confirms that. Gold stocks represent an investment in gold and in the stock market, yet they do a lot worse than either.
Since the end of 1983, gold bullion has risen about 160 percent, while the Standard & Poor's 500-stock index is up more than 500 percent, even after the worst collapse in nearly 80 years. As for gold stocks, the widely followed PHLX Gold/Silver Sector index has doubled since November, but that only gives it a gain of 70 percent or so over the quarter-century.
If you own mining shares, you may want to consider selling at these prices. The same goes for physical gold, although it's reasonable to keep a bit as head-for-the-hills money in a crisis. With gold running up against levels from which it has always turned back, the stock market rally looking tired and mining shares perennial losers, this is the time to cut exposure to gold, not add to it.