In Gold We Trust

CHICAGO -- Christopher Goolgasian has an unorthodox way of deciding whether it's a good time to invest in gold. "If Ben Bernanke is Fed chairman, buy gold," he said -- only partly in jest -- during a session here yesterday at the second annual Morningstar ETF Invest Conference.

Goolgasian, a senior portfolio manager in State Street Global Advisors' multiasset class solutions group, is bullish on gold. He said about 10% of his personal assets are invested in the metal, which he views as a potential hedge against inflation and currency debasement.

"If you want to be short politics, you want to be long gold," since there's an inverse correlation between President Obama's approval rating and the price of gold, he said (again, only partly in jest).

Gold prices ebb and flow from day to day, largely because of daily events. However, the overall trend is clear. As world turmoil has increased, so has the price of gold. And many experts, from Goolgasian to IU Editor in Chief R. Scott Raynovich (See: The Gold Update), say the price could go higher, especially in the aftermath of new ownership restrictions in Europe.

Austria just enacted a policy that lets individuals purchase only 15,000 euros of gold at a time, making it an officially "restricted" commodity. Italian officials are said to be considering a ban on cash gold sales of more than 300 euros.

"When governments start limiting the purchase of gold, it's bullish for gold," Goolgasian said.

He won't predict how high it will go. Call him the rare Wall Street professional who isn't willing to name a maximum price. Instead, he tracks 30 variables that he believes will affect gold prices. "Our strong view is that those measurables are likely to get better for gold -- that the price will rise."

Those macro issues include interest rates, politics, long-term inflation expectations, economic growth, and the psychological desire for a safe haven from fears of wars or food shortages. Simply stated, when things get bad, gold looks good.

He did offer an interesting caveat: Don't horde gold bullion. In a doomsday scenario, he said, people won't be able to trade gold bars. Instead, investors should go for coins, rings, necklaces, and other things that can be traded easily for things they may need to survive.

Goolgasian made his views clear from the title of his talk. You don't call your presentation "In Gold We Trust" unless you have some confidence in it. Of course, gold runs the risk of a "monumentally bad" tumble, but that would require governments around the world to clean up their acts, clean up their debt and deficit problems, and usher in new eras of austerity.

How likely is that? Goolgasian didn't have to say much to demonstrate he doesn't think it very likely at all. He just put an often cited 1928 quote from George Bernard Shaw on the screen:

You have to choose [as a voter] between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the government. And, with due respect for these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold.

Goolgasian had a lot of reassuring words about gold. To start, it's not in a bubble. Why? The popular press is already warning that gold is crashing. "That's a good thing," he argued. "When you're in a bubble, everyone is in on the bandwagon. And they aren't."

Though hard data is hard to find, Goolgasian guesstimates that institutional investors have less than 1% of their assets in gold. "Retail investors probably have even less in gold." As a bubble forms, three things typically happen:

1. The asset becomes widely owned.
2. The asset becomes easy to own psychologically -- there are few objections, naysayers, or cynics.
3. There is a proliferation of ways to access the asset.

None of these has happened with gold, he said. And then there is the simple concept of supply and demand. The volume of gold worldwide just isn't growing that much. There are limited supplies. So, as any Econ 101 student (or any kid who ever ran a lemonade stand) knows, the value will grow with increased demand.