News flash: recent declines in the price of gold, which is off about 17 per cent from its peak, show that this price can go down as well as up. You may consider this an obvious point, but it has come as a rude shock to many small gold investors who imagined it was the safest of all assets.
And thereby hangs a tale. One of the central facts about modern America is that everything is political; on the right, in particular, people choose their views to suit their political prejudices. And the remarkable recent rise of "goldbuggism", in the teeth of all the evidence, shows that this politicisation can influence investments as well as voting.
What do I mean by goldbuggism? Not the notion that buying gold makes sense. Gold has been a good investment since the early 2000s, and it's probably not all bubble. One way to think about it is that gold is like a long-term bond protected from inflation; and actual long-term inflation-protected bonds have seen big increases, reflecting a perception that there aren't enough good investment choices.
No, being a goldbug means asserting that gold offers security in troubled times; it also means that all would be well if we abolished the US Federal Reserve and returned to the good old gold standard, in which the dollar was fixed to gold supply and that was that. And both forms of goldbuggism soared after 2008.
After the financial crisis, to watch news on TV, especially on Fox, was to see talking heads touting gold, and many ads from the likes of Goldline. Many Americans were convinced: a third of those polled by Gallup in 2011 said gold was the best long-term investment.
Also, calls for a return to the gold standard proliferated, and not just among marginal figures. Indeed, the 2012 Republican platform effectively demanded a return to gold, calling for a commission to "investigate possible ways to set a fixed value for the dollar" and making clear the preferred route involved a "metallic basis" for the currency.
So the crisis of 2008 brought a surge in gold fever (although it has abated since 2011). But why?
After all, historically, gold has been anything but safe. Sometimes it yields big gains, as in the 1970s and between 2001 and 2011. But the 1970s run was followed by a plunge, with gold falling more than two-thirds.
Meanwhile, the modern world's closest equivalent to the classical gold standard is the euro, which puts European countries back under more or less the same constraints they faced when gold ruled. It's true that the European Central Bank can print money if it chooses to, but individual countries, like nations on the gold standard, can't. And who would hold up these countries as something we'd like to emulate?
So how can we rationalise the modern goldbug position? Basically, it depends on the claim that runaway inflation is just around the corner.
Why have so many people found this claim persuasive? John Maynard Keynes famously dismissed the gold standard as a "barbarous relic". But he also said that "gold has become part of the apparatus of conservatism and is one of the matters which we cannot expect to see handled without prejudice".
And so it remains to this day. Conservative-minded people tend to support a gold standard because they think money created on a discretionary basis to stabilise the economy is really just part of the larger plot to take away their hard-earned wealth and give it to you-know-who.
But the runaway inflation that was supposed to follow reckless money-printing keeps not happening. For a while, rising gold prices helped create some credibility for the goldbugs, but now gold as an investment has turned sour. So will we be seeing prominent goldbugs change their views?
I wouldn't bet on it. In modern America, as I suggested at the beginning, everything is political; and goldbuggism will probably continue to flourish no matter how wrong it proves.
The New York Times
Jake van der Kamp is on holiday