Gold: The hedge against political stupidity

Gold is said to be a hedge against inflation, deflation and all other nasty sorts of economic bugaboos. It looks like it may be a hedge against political incompetence too. The price of gold has surged more than 7% in just the past week and a half. The yellow metal is now trading around $1,750 an ounce. That's still a bit lower from the all-time high of about $1,924 from just a few months ago. But experts think that a new record could be in the cards soon if the debt melodrama in Europe (As George Papandreou Turns?) continues. The incessant chatter and gossip -- will there be a referendum or not? -- is only serving to make already jittery investors even more skittish. That's a perfect recipe for a rally in gold, which is the quintessential safe haven because it's something with tangible value ... as opposed to a stock or paper currency. "What's driving gold right now is that investors don't know what to do. All the rumors in Europe are making people worried," said David Beahm, vice president of economic research with Blanchard & Company Inc, a New Orleans-based investing firm that specializes in gold and other precious metals. "Gold may be volatile but I can't see a reason why it would go down much. I think a price of $2,000 by the end of the year is still possible," Beahm added. But it's not just the latest EU scuttlebutt that is lifting gold. Actual news is helping too. In somewhat of a surprise move, new European Central Bank president Mario Draghi announced that the ECB was cutting interest rates. That could put more pressure on the Federal Reserve, which did not announce any new policy moves after its meeting Wednesday, to do something if the global economy continues to founder. The Fed can't cut rates (they're already at zero) but some are urging the central bank to start a third round of bond buying, a so-called QE3. In fact, one Fed member, Chicago Fed president Charles Evans, dissented with the central bank's decision to stand pat. According to the Fed statement, Evans wanted "additional policy accommodation at this time" -- which is likely code for QE3.

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