WHY GOLD?(The Talk of the Town)

One of the perks of stardom is the indulgence of unusual requests. Ozzy Osbourne used to require the presence backstage of an ear, nose, and throat specialist who could administer B-12 shots. Guns N' Roses demanded Dom Perignon and Wonder Bread. For Van Halen, it was a bowl of M&M's--with all the brown ones removed. Then, there was Bette Midler, who, when she toured Europe in the late seventies, insisted on being paid not in dollars or pounds or francs but in gold. It was a fashionable extravagance. With inflation devastating the value of national currencies, Western economies in the dumps, and oil prices soaring because of tension in the Middle East, anxious investors had fled to the security that supposedly only gold could provide. An ounce of gold, at its peak, in 1980, was worth eight hundred and fifty dollars.

That was a long time ago, and, as far as we know, Usher has yet to pester his promoters for Krugerrands, but economic worries have recently prompted investors to start coveting gold again. The weakness of the dollar, America's enormous trade deficit, and war in the Middle East have sent the price of gold up forty per cent in the past two years, and last week it hit a sixteen-year high of four hundred and forty-five dollars an ounce. In the speculative imagination, gold remains the best hedge against Armageddon.

It also remains a testament to the tenacity of popular delusion. What is gold, after all? Strictly speaking, it's a commodity, like oil, steel, or lead, albeit not an especially useful one. There's a steady but small demand for gold as an industrial product--for consumer electronics, computers, and dental work--and as jewelry, particularly in India, which now buys twenty per cent of the world's annual gold output. And there's a steady supply. Since 1970, world production has nearly doubled, thanks to mining companies that tear up mountainsides every year in search of it.

Yet the price of gold has little to do with these two variables. To true believers--known as "gold bugs"--the idea that gold is a commodity is rank heresy. They prefer to think of gold as the planet's most reliable currency, a stable, ineradicable source of wealth, whose value will endure no matter what comes to pass.

It's hard to square this faith with what has happened to the price of gold in the past two decades. It has been a terrible investment. Even with the recent surge, it's up zero per cent since 1988, while the S. & P. 500 has almost quadrupled. Gold's buying power has plummeted, too. In 1980, ten ounces of gold would have bought you a nice car. Today, it would get you a nice bike. The gold bugs have a handy explanation: gold is a victim of market manipulation and bad press. Wall Street and the world's central banks are, apparently, "enemies of gold," holding gold prices down in order to prop up people's confidence in the ...