Not Buying Into the Gold Rush

And I'll venture further down the yellow brick road to predict that a period when mints can't keep gold coins in stock, when a deep recession stalks the land and the Fed scrambles to buy up debt no longer in demand with private buyers will not go down in history as an opportune time to load up on bullion. All the potential buyers in the medium term would seem to have bought over the last two months.

And yet the inevitability of gold's rise has become fashionable deduction to draw from our current troubles. No less a luminary than our own Don Luskin has taken a shine to the barbarous metal of late. Don's assumption is that all the Fed's monetary injections will eventually flood the globe with cheap money, boosting the price of commodities -- and gold in particular as the traditional store of value.

It might happen, Don predicts, because the Fed will need to buy bonds to keep interest rates down. Of course, since Don made that prediction four weeks ago, the yield on the 30-year Treasury is down 79 basis points, or 18%, without the Fed so much as lifting a finger in the cause. In fact, its many new credit initiatives should have driven long-term interest rates up -- if the deepest, most liquid market of them all were really worried about inflation. But bond buyers are focusing instead on the worst asset deflation since the Great Depression and the steepest consumer spending downturn in a quarter-century. And I'd bet with them before lining up with those who've buried kreugerands in the back yard.

We're on the doorstep of Black Friday, that wonderful gimmick in which retailers use jaw-dropping discounts to draw early-bird holiday shoppers and get some free TV time on a slow news day. But the rest of the coming holiday season is shaping up as one long staredown between glum consumers and chains aware that anything they don't sell this month is either getting marked down big come January or cluttering the racks for a long time.

The job market stinks, housing is on life support and banks still have huge losses to write down. These things always take much longer to fix than anyone expects a year into the process. Inflation is not lurking just around the corner -- it's been laid off, evicted and buried alongside those kreugerands.

No doubt it will come back once more once the current crisis turns into an especially unpleasant memory. But the asset class properly leveraged to that outcome is stocks, not gold, which incidentally doesn't pay quarterly dividends. Then, when stocks have recovered from the current panic lows, once could profitably sell them to the current gold bugs in exchange for some of their gold.

I liked gold in 2003 and again in early 2007. Now, not so much. It makes more sense to buy the highly unpopular asset class rather than the one so hot it's on back order.