The Economist magazine’s latest “Buttonwood” column, which focuses on finance and economics, examines rising gold prices. Here’s a snippet: 

“It is enough to make a gangsta rapper curse. The cost of bling is rising sharply. On March 5th gold took a pot shot at $1,000 a troy ounce, hitting a record $991.9. It is widely expected to shoot even higher than that in the near future.

“In one sense, gold’s rise is part of a surge in commodity prices that has seen oil break above $100 a barrel, and wheat reach a record high on supply shortages and rising demand from the world’s meat-eating middle classes. Indeed, bullion has been outperformed by another precious metal, platinum, which has doubled since the start of 2007.

“But gold is not a normal commodity. The forces of supply and demand, largely driven by the jewelery markets of Asia and the Middle East, are often overwhelmed by the yellow metal’s role in investment markets. Thanks to its historic role as the basis for the global monetary system, many people see gold as a currency in its own right. Indeed, enthusiasts regard gold as the only true currency, since paper money will always be debased by the financial authorities.”

However, “gold can be driven to speculative extremes. When it reaches those heights, investors need to be cautious of the argument that the metal is a long-term ‘store of value’; after all, between 1980 and 2000, its price dropped by two-thirds in nominal terms. Investors should be wary about being caught out again.”