After the goldrush

There could be no more certain indicator than this that the spiral in gold prices is nearing an end: the reliably unreliable investment sections of the weekend newspapers are starting to tout the metal to their credulous readers. Yes, the same people who spivved millions of Brits into putting money into unpronounceable foreign banks a few years ago, triggering huge costs for the taxpayer when said banks collapsed, are now teasing their readers with headlines such as "Can you gain in the gold rush?"

It's true that gold prices are at record levels in US dollar terms, so there's certainly been money to be made if you got in at the right time. Take a look at the medium-term price chart, from goldprice.org.

You'd have made money out of gold by getting in at any time since 2002, and there was an entry opportunity in late 2008 when the price briefly fell back. But one of the few rules of investment that almost always works is "buy low, sell high", and the folks at the weekend papers are now cheerfully telling small investors to do the exact opposite. Small investors who pile into a long-running trend at a late stage rarely make money. Usually they just give those who got in early a chance to get out at a big profit. Gold may yet move higher, but it would be prudent to assume that the big profits have already been made.

One person who thinks so is Bill Emmott, former editor of The Economist, now plying his trade for News International. His column in The Times on Monday was titled "The end of the golden age will soon be with us". (Paywall protected, sorry). It's a good, balanced analysis of the factors that have pushed gold up so far. Unfortunately one of The Times subs who couldn't be bothered to read it properly stuck this entirely misleading sentence below the title: "The dramatic rise in precious metal prices is not a sign of Western inflation but of turmoil in the Middle East" . The "Arab spring" only began in January so it's hard to see how it can be the cause of a rise in gold prices that's now lasted for almost a decade.

There's no need to look much further than US Fed policy for the real cause. If the Fed signals an end to quantitative easing, which it could possibly do as soon as this week's FOMC statement, gold may start to lose some of its appeal.