a splendid spring day in Connecticut's horse country
and James E. Sinclair, perhaps the best-known gold speculator
of his era, is sitting before his trading terminal,
contemplating the upward thrust of gold on his trader's
chart. The sun, bursting through the bay windows, catches
the glint of gold that is everywhere in Mr. Sinclair's
home office: on the coins near his computer, on his
chunky Rolex watch, on the rings on three of his fingers,
on the cuff links on his monogrammed shirt, and could
it be? a hint of it in his one working eye.
"I love gold, O.K.?" he said, his voice rising in excitement.
"Gold has made me wealthy. It feels nice. It's exchangeable.
Norm Betts/Bloomberg News
Gold now trades at more than $680 an ounce. Gold bugs are predicting that the price could soon top $1,000.
his television set, which is tuned to CNBC, news breaks
of a terrorist attack in Egypt, the price of oil pushes
higher and traders continue to sell the dollar, which
is approaching a one-year low against the euro.
With gold trading at $683.80 an ounce, a 25-year high,
it's a good time to be a gold bug like Mr. Sinclair,
especially if, like him, you own a gold exploration
company (his is in Tanzania) and were a buyer when the
metal sank as low as $250 an ounce in 2001. Now Wall
Street, traditionally a laggard when it comes to making
the investment case for gold, has jumped on Mr. Sinclair's
Investment banks like J. P. Morgan and Goldman Sachs
are putting out bullish research notes, retail investors
are heavy buyers through exchange-traded funds and hedge
funds; and the trading desks of investment banks have
been piling into the market, especially in the last
For Mr. Sinclair, who rode the last bull market in gold
to its peak, in 1980, the surging price of his beloved
metal is sending out clear signals that take him back
to the 1970's, when inflation, a weak dollar and an
oil spike driven by turmoil in the Middle East propelled
gold to a high of $875 an ounce, or more than $1,800
in current dollars after adjusting for inflation. His
ultimate price target now is not far from that: $1,650
an ounce, assuming that things become really bad. "Gold
is a barometer of the common stock of a country, and
right now gold is sniffing out weakness in the management
of the United States as a business," said Mr. Sinclair,
65, a lifelong Republican who twice voted for President
Bush. "Iran is becoming a nuclear power. The chairman
of the Federal Reserve is on a puppet string controlled
by the White House, and there is no such thing as a
strong-dollar policy when the dollar is heading south."
more than two decades, the apocalyptic lament of Mr.
Sinclair and other gold bugs has been largely dismissed
as the United States has experienced aside from a
few hiccups a 25-year bull market in a range of assets,
from stocks and bonds to real estate and art.
Sustained by a continuing flood of liquidity, these assets have continued their mighty climb, even as crucial gauges of economic health in the United States the budget and current account deficits have continued to worsen. But now, with gold making a run for $700, dedicated gold investors are getting a wider hearing.
passion notwithstanding, gold bugs tend to be small-time
investors. Gold's recent surge has instead been underpinned
by a rush of mainstream investors, including hedge funds,
commodity-based mutual funds and exchange-traded funds.
these investors, gold is less a way of life than it
is hedge against inflation and a prudent measure of
diversification during an increasingly worrisome time.
The extent to which this new wave of capital remains
invested in gold will determine if the recent spike
is just another anomaly or the onset of the second coming
of the great gold bull market that the true believers
have been calling for since the price of gold crashed
a quarter-century ago.
course, many investors say that given gold's sharp recent
climb, a correction would not be surprising. It's another
asset bubble, they say, the latest investment fad. But
for Mr. Sinclair and a small clutch of other self-exiled
Wall Streeters, the metal's recent climb is just deserts
for their unwavering, if not mystical, devotion to gold
as an investment, an adornment, a means of exchange
and, more than anything else, a moral bulwark in a corrupting
sea of paper money, credit and what they see as insidious
Sinclair, who in the 1970's ran his own trading firm,
achieved his renown by selling 900,000 ounces of gold
at an average price 0f $810 in early 1980. That was
when the metal was capping a decade-long bull market
that commenced in 1971, when President Richard M. Nixon
severed once and for all the dollar's link to gold.
addition to selling his hoard, Mr. Sinclair sold his
trading business, took his total net gain of $18 million
and retreated here to the Connecticut countryside where
he built his own private Shangri-La. It is indeed, as
Mr. Sinclair likes to call it, "the house that gold
the outskirts of Sharon, a village at the foot of the
Berkshires, the sprawling 38-acre estate includes an
indoor swimming pool and pistol range, horse stables
and a specially equipped garage that once housed his
collection of racing cars. It's a lot of property for
a solitary man his wife of 40 years died in a car
crash in India two years ago. Now, he uses his Web site
(jsmineset.com), books, DVD lectures and cartoons that
he commissions to proselytize about the virtues of gold
and the depredations of central bankers.
"This will be my last great ride," he said of the current spike in gold prices. "Everybody loves to be right."
Spain, they call the obsession of some people to dig
large holes in the ground to search for the elusive
ounce of gold "mal de piedra," or the sickness of rocks
one way, perhaps, to describe the condition that affects
Mr. Sinclair and his coterie of gold investors.
their missionary zeal and weakness for conspiracy theories,
gold lovers can seem a touch afflicted. They also collect
and pass around offbeat, brain-teasing findings. One
is that the dollar has lost 98 percent of its value
since 1913, when the Federal Reserve System was established.
Another is an assertion by the American Institute for
Economic Research, an obscure research outfit in Great
Barrington, Mass., that since 1945, inflation has eroded
$15.8 trillion from the savings accounts of United States
findings underscore their benchmark precept: that a
currency not tied to gold becomes debased when central
banks print money and governments spend freely. Perhaps
Alan Greenspan, who before his run as chairman of the
Federal Reserve was highly regarded in gold-bug circles,
captured this point best. "In the absence of the gold
standard, there is no way to protect savings from confiscation
through inflation," he wrote in 1966, when he was an
economic consultant. "Gold stands in the way of this
great liquidity explosion that occurred under Mr. Greenspan
has made him a turncoat in the eyes of the gold-bug
crowd. But his successor, Ben S. Bernanke, or "Helicopter
Ben" as they call him, inflames its passions all the
more. To this group, Mr. Bernanke's passing allusion
before he became Fed chairman to a helicopter dropping
money over a recession-bound economy confirmed its deepest
fears that a monetary system not anchored by gold was
essentially inflationary if not downright immoral.
the same, most mainstream economists accept that a return
to the gold standard and its restrictive covenants would
be not only unfeasible but also deflationary. Gold bugs
may cry, and be correct, about the creeping impact of
inflation, but it is also true that the same climb in
prices, aided by the great liquidity boom, has made
some of them millionaires, as houses they bought for
less than $100,000 in the 1960's are now worth millions.
Mr. Sinclair, William J. Murphy III is also a Wall Street
refugee. After a one-year stint in 1968 as a wide receiver
for the New England Patriots, he began a career as a
commodities trader, working for a number of firms, including
Shearson and Drexel Burnham. Convinced that the price
of gold was being suppressed by an unholy alliance between
the central banks and major investment banks, he formed
the Gold Anti-Trust Action Committee, known as GATA,
that seeks to publicize facts and assertions that support
his point, namely that the gold reserves in central
banks are significantly overstated.
for the most part is a one-man show Mr. Murphy, dressed
in his sweatsuit, perched in front of the computer in
his home in suburban Dallas. With his excitable manner
and his outré theories about gold, he is generally thought
to exist on the outer fringe of the gold-bug movement.
his central thesis that Goldman Sachs and other banks
have conspired to keep a cap on the price via short
sales to back the government's strong-dollar policy,
especially while a former Goldman senior partner, Robert
E. Rubin, was Treasury secretary in the late 1990's
the price of gold surging, Mr. Murphy is convinced that
Goldman Sachs, J. P. Morgan and others are frantically
buying now to cover for the gold they sold short over
the years. Goldman Sachs and J. P. Morgan declined to
comment about their gold trading positions or strategies.
a day," Mr. Murphy said one day last week as gold broke
through $670. Goldman Sachs and J. P. Morgan were big
buyers that day on Comex, the division of the New York
Mercantile Exchange where gold contracts trade. Sputtering
at the joy of it all, Mr. Murphy could well have been
a prospector hitting the Mother Lode. "These guys are
short, and they are panicking to get out of their positions,"
he said. "They are sweating bullets, and it couldn't
happen to a nicer bunch of guys."
is a kernel of truth to what Mr. Murphy says. Central
banks have been aggressive sellers of gold, especially
in the late 1990's, when gold was touching record lows.
But most economists say that there was no grand design
involved, just a badly timed attempt to shift into higher-yielding
assets like bonds.
for investment banks, they are sellers and buyers of
any given asset at any given time. But it is also true
that they have hardly been enthusiastic advocates for
gold as an investment, especially when the stock market
was king. Even now, as they have issued positive reports
about the metal, their price targets seem oddly out
of sync with its relentless rise.
forecast for a year-end price is $625 an ounce; J. P.
Morgan's target, which is currently under review, is
$560, and Morgan Stanley's is $550.
with Mr. Murphy and his boylike excitability, James
Turk speaks with an assured gravity consistent with
his background as a commercial banker at Chase Manhattan.
But his views about gold as the ultimate store of value
in a financial world on the verge of collapse are no
Mr. Turk has established his own online payment system,
GoldMoney.com, through which he and his fellow gold
bugs may enjoy the thrill of buying goods and services
via gold, not cash.
some ways, it is a symbolic exercise. While the payment
system is supported by $100 million worth of gold, no
merchants have agreed to take bullion as payment, although
Mr. Turk hopes that day may come. More than anything
else, the site demonstrates his disdain for the dollar
and all other forms of paper money a view that he
often heard from his parents, who experienced the ravages
of hyperinflation in Austria in the 1920's.
not gold going up; it's the dollar going down," Mr.
Turk said by phone from Australia, where he was speaking
at an investment conference. Gold has held its value
much better than the dollar against commodities like
oil, he said.
oil hitting new highs it has hovered around $70 a
barrel for weeks Mr. Turk foresees a return to the
1970's, when high inflation and a volatile Middle East
drove gold to its peak. "If we get close to $850 this
year, it's most probable that we will see a four-digit
gold price in 2007," he said. Four-digit gold an ounce
of bullion selling for $1,000 or more is the gold
bugs' equivalent of a visit from the Messiah.
for the growing number of hedge funds that are piling
into the commodity, gold is less a virtuous investment
than it is a mercenary one.
and India are buying more gold. Iran is becoming more
bellicose in its stand toward the West. And, most important,
liquidity is making a broad shift to commodities and
out of stocks.
I think that gold is God? No," said Monty Guild, who
runs Guild Investment Management, a hedge fund in Malibu,
Calif. "I'm a gold opportunist. When it's good, we like
it; when it's not, we stay away. Gold does well during
wars, and we believe there will be more wars."
for those not in gold, or any other highflying commodity,
for that matter, the feeling can be lonely. William
H. Miller III, portfolio manager of the $19 billion
Legg Mason Value Trust, which has beaten the Standard
& Poor's 500-stock index for 15 consecutive years, has
no gold in the fund. His view is that inflationary expectations,
if not prices themselves, remain quiescent, and that
gold like oil, emerging markets and small-cap stocks
before it has become the latest investment craze,
propelled upward by a wave of hot money, a term for
speculative short-term capital.
certainly looks extended from here," said Mr. Miller,
whose fund is currently trailing the S.& P. 500 for
the year. "It's easy to make money when you are trend-following,"
he added. "But if you are worried that the end is near,
the last thing I want is gold because of all the hot