Why Gold's Gleaming

Since the intrinsic value of gold is a real mystery to most people -- it doesn't have a P/E multiple, and it doesn't seem essential to everyday life -- it goes through historical cycles of lust and indifference. In recent months, it has decoupled from its inverse relationship with the dollar, moving higher even as the dollar has advanced because of improvements in the demand-supply balance. My guess is that while now is not the time to chase it, patient investors will be rewarded by buying the next big dip either via the futures market or through the shares of gold-mining companies.

I'll have a few suggestions along those lines in a moment, but first a little background.

What sets gold apart from everything else you can sink your hard-earned money into?

For one thing, while gold is not particularly rare, its supply is finite. For another, unlike stocks and bonds, it has been considered a store of value for more than 2,000 years. The gold bugs will tell you that an ounce has bought a man's suit since the loincloth era. (Depending on where you shop, of course.) But the point is that regardless of whether a country's currency is priced in dollars, lira, Reich marks or cockleshells, during frightful moments of value destruction -- such as periods of hyperinflation, war or natural catastrophe -- gold has been acknowledged as a medium of exchange.

The theory is that if terrorists knock out the global ATM network, it would be easier to trade a gold coin for five sacks of flour than, say, a personal check decorated with a sailboat silhouette.

Like oil and gas, gold is hard to find, hard to coax out of the ground and harder still to refine into usable form. Moreover, it is not exactly located out in the open in some Kansas cornfield. Through quirks of geology, most of it happens to be concealed deep in the earth in places as remote, and sometimes unstable, as the jungles of Ghana and Brazil, the deserts of Nevada and Mongolia, and the mountains of Kyrgyzstan, Turkey and South Africa.

Forces of Scarcity

In days gone by, a prospector could start hacking away at his claim with a pick and hammer, but today, local politicians and nongovernmental organizations are teaming up to prevent the environmental damage that mining wreaks on animal, native and forest habitats. The main complaint of the industry -- outside the rising price of energy and the difficulty of finding good mining engineers and securing supplies of special equipment -- is the burden and cost of battling bureaucracies over strip mines, labor practices and toxic chemicals.