Glenn Beck's gold problem

Funny thing about the yellow stuff. When real apocalypse threatens, investors buy dollars

Published December 8, 2009 10:24PM (EST)

When Fox News starts worrying about the impropriety of Glenn Beck's goldbug mania, you know that matters have gotten completely out of hand. At DailyFinance, Jeff Bercovici reports that Beck's prominent role endorsing coin vendor Goldline International may be running up against conflict-of-interest rules at Fox. Beck's on-air drumbeating for gold as the answer to an Obama-induced apocalypse doesn't help, (even if has made some money for at least one Salon correspondent.)

Ken Vogel has the definitive conservative-goldbug nexus story in Politico. But everyone who has investigated this issue seems to be missing a key point: Gold's popularity is a sign that apocalypse is being averted, not that it is nigh.

The standard theory is that buying gold is a hedge against a weak dollar. The dollar has been falling in value for months in part because investors fear that the inflationary consequences of all the liquidity that the Fed has pumped into the global economy to avert a second Great Depression. But take a closer look at that dynamic: the dollar is weakening not because there is any imminent sign of inflation now but because the fledgling steps towards economic recovery make people assume that eventually inflation will be inevitable. (And, as Matthew Yglesias points out, the dollar is only now back to where it was before the financial crisis began.)

Notice the contradiction? Economic recovery, not disaster, is fueling the gold-buying binge.

No clearer evidence of this could be asked for than the data offered by today's markets -- the dollar strengthened and gold fell, as investors worried that the downgrade of Greece's credit rating, along with disappointing industrial production numbers from Germany and more problems in Dubai, signaled that the global economy is still in peril.

When real danger threatens -- where do investors put their money? Back in the dollar.

By Salon Staff

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