Peter Jackson column

Dec 15 2005 By Peter Jackson, The Journal

Gold was nudging $541 an ounce on Monday, close to its highest level for 21 years.

In the event it fell back and, at the time of writing, was $522, prompted, apparently by sales in Japan.

This leaves us with the fundamental question of any market - will prices continue to fall, or go up? Some analysts argue that we have seen a bubble in the price, that it has climbed almost 20% this year, has nearly doubled in the past five, that there's always a pre-Christmas rise in demand for jewellery and that the market is overbought.

After all why, in this day and age, should gold be so valuable? As Henry Ford said: "Gold is the most useless thing in the world".

He also, more famously, said: "History is more or less bunk". But history can tell us a thing or two.

The most important lesson is that when times are troubled and people are fearful, they put their faith in gold. Hence its success in time of war, rising energy costs, fear of terrorist attacks and concerns about the stability of the dollar.

It is an asset not matched by a liability, it doesn't depend on the guarantee of any government or other organisation and gold retains its purchasing power.

As for a probability of a short-term fall, let me remind you of predictions forecasters were making last time I wrote on this subject, nearly two years ago - that gold would fall to $420 an ounce by the end of 2004 and to $325 by the end of 2006.

They may still be right - who knows? I'm not going to recommend to anyone that they buy or sell gold, but I would urge them to keep an eye on the price. Because one thing that will tell you is how confident people feel about other forms of investment - and knowing that is worth its weight in gold.