Is It Too Late for the Gold Rush?

Are investors rushing into gold just as most of the upside has been all but mined out?

That's what plenty of readers accused me of recommending after my Jan. 29 column, Four Ways to Get In on the Next Gold Rush.

Truthfully, the gold bug left me cold until I ran across a news item on Bloomberg a couple of weeks ago. On Jan. 22, the wire service reported that European Union finance ministers had agreed to report foreign savers' interest income to their home tax authorities.

While that bureaucratic action might sound like an innocent attempt to wring more taxes out of citizens who are wealthy enough to have foreign bank accounts, it sounded like a power grab that takes the Continent one step back toward its dark days of totalitarianism -- and it is likely to be one more reason that smarter Europeans might turn increasingly to gold as a store of wealth instead of bonds, equities or paper cash.

Offshore havens exist in places such as Switzerland and Luxembourg because people -- particularly persecuted minorities, but also the reasonably paranoid rich -- have learned the hard way that governments sometimes do bad things, and it may be a good idea to have some wealth legally tucked out of the reach of your home authorities. If paper wealth is suddenly going to come under greater scrutiny for the sake of a few extra dimes' worth of tax receipts, then one of the few alternative options for well-to-do Europeans will be gold.

Readers Respond

This potential source of interest in the yellow ore may be one of the hidden reasons that prices have risen sharply in the past two months, from the $320 level at which it traded from September to December 2002, to the current price around $370. To be sure, as I wrote last week, higher gold prices are tied strongly to fear over a war with Iraq. But many experts I have interviewed say the war premium probably accounts for only $20 to $30 of the current price.

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