Last Updated Nov 26, 2010 12:54 PM EST
Gold has been a stellar performer not just for the last year but for the last decade, in which it has risen more than fivefold. The continuing strength makes commentators who expected a decline in the metal (me, for instance) look foolish, but at least we bears are in good company. Jeremy Grantham, chief investment strategist of the fund manager GMO, took time out from his Fed-bashing in his latest quarterly newsletter to make the case against gold.
While advocates like to highlight the differences between gold and paper money, Grantham elegantly points out a key similarity - that neither has any significant intrinsic value. Paper currencies may only be worth what naÃ¯ve true believers are willing to pay for them, but that applies to gold itself, he says:
Grantham has a point. Real estate has a tangible value, even if prices are in the dumps these days. Stocks similarly represent pieces of (mostly) profitable businesses that produce goods and services with (mostly) tangible value.
The last decade is an anomaly for gold. Over the very long haul, it has failed to match the performance of every other major asset class. So while owners of gold may disdain paper money, they may come to wish that they had exchanged their hoard for the large amount of paper that they can get for it today.