Gold is the stuff myths are made of.
Among the myths: It is a store of value, a hedge against inflation or a hard alternative currency.
Its behavior over recent decades suggests that it has been inconsistent in those roles. It has done better as something simpler: a bet on fear.
Gold rose on basic economic fears in the 2000s but fell starting in 2011 as those fears abated. Now fears are spreading again about waning Federal Reserve stimulus and about global growth. Gold has rebounded 11% since mid-December.
Experienced gold analysts are warning clients to be careful: If the fears subside, the price of gold could do the same.
"Gold goes up as an insurance policy and then it is sold at a loss when people no longer want insurance," said Rhona O'Connell, head of metals research and forecasts at Thomson Reuters GFMS, a research firm known for its work on gold.
Gold could move higher temporarily, but Ms. O'Connell says its price is likely to have trouble making significant gains before 2016 because economic confidence has improved.
Sameer Samana, senior international strategist at brokerage firm Wells Fargo Advisors, suggests clients use gold's rebound to sell anything they have left.
"What we have found in our work is that a broad basket of commodities is a better hedge against inflation, a greater diversification and a better hedge against the dollar," Mr. Samana said.
Gold does well "when you are very nervous about the world," he said.
He prefers copper, aluminum and zinc in a time of recovery.
Gold differs from other investments in an important way: It isn't very useful. Some is used for rings, watches, dental implants and electronic connectors. But the vast majority is hoarded as bars, coins or, in developing countries, heavy jewelry that serves more as a protection against disaster than an adornment.
Unlike stock, gold doesn't offer a stake in a business's results. It doesn't pay dividends or interest. It doesn't grow crops like farmland or provide shelter like a building. It is useful when people are fearful and flee to it.
Gold soared in the 1970s amid oil crises, runaway inflation and a volatile stock market. When the economy recovered gold collapsed.
Gold rebounded in the troubled 2000s but peaked in 2011, the year Standard & Poor's downgraded U.S. sovereign debt and stocks fell nearly 20%. Economic stability since then has put a lid on gold.
Particularly disappointing, gold has never come close to returning to its 1980 record once inflation is taken into account.
Gold futures hit a record $825.50 in New York on Jan. 21, 1980, which in today's dollars is $2,481.98. Gold's 2011 high was $1,950.15 in today's dollars, 27% short of a record. On Friday, gold futures closed at $1,323.90.
Stocks have hit inflation-adjusted records repeatedly since 1980, most recently in December and January. Gold hasn't. It is barely halfway back to its 1980 record, taking inflation into account.
Gold in that time has worked better as a speculative bet on fear than a store of value. Because Western economies tend to experience more stability than fear, gold is typically a risky holding there.
The Permanent Portfolio, a San Francisco mutual fund that invests in bonds, gold, stocks and foreign investments, ballooned to $17 billion a year ago from $57 million in 2000. Now it is back to $9 billion.
Michael Cuggino, its president, says gold wasn't the only reason for redemptions; investors have fled bonds and other conservative investments. Some money has returned to his fund since gold began recovering in December.
Still, "when people got concerned about gold in the second quarter of last year, there were more redemptions than previously," he said. He is optimistic about gold but sees the mentality shifting. Investors, he said, are more concerned about returns than protection.
One reason for gold's recent rebound is demand in China and India, where economic worries have risen. Swiss refineries have worked overtime to recast big bars favored by Western banks into smaller ones preferred in Asia.
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