One man vs. the gold bubbleMay 19, 2010: 11:18 AM ET
Jeremy Grantham is so tired of hearing about gold that he decided to kill the rally -- by buying some.
What's the surest way to pop a bubble? By buying the inflating asset yourself, of course, in a move that every investor dreads is certain to mark the top.
Funnily enough, that's just how value investor Jeremy Grantham describes his approach to the latest run-up in gold, perhaps minus the dread.
Grantham, a longtime skeptic of gold's value to an investor, told the CFA Institute Monday that having decided he can't beat the gold bugs, he is holding his nose and joining them.
"I hate gold. It does not pay a dividend, it has no value, and you can't work out what it should or shouldn't be worth," Grantham said, according to an account of the comments by Robert Huebscher of investment advice provider Advisor Perspectives. "It is the last refuge of the desperate."
Grantham (right) then went on to deliver the punchline -- that he bought some last Friday.
Grantham, co-founder of investing firm GMO, has long questioned the rationale of buying gold, saying it produces no income and that its value can't be rigorously evaluated.
"I can say with a clear conscience that I have never made a mistake in gold because I have never had an opinion on gold," he said in a 2002 interview with Barron's. "I have completely and assiduously avoided it. I feel uncomfortable with gold. It has no yield."
That view is distinctly out of favor now, with the price of gold having quadrupled over the past decade and investors shuddering at the prospect of inflation everywhere.
Gold fans say the metal is the only reliable store of value at a time when the world is awash in paper currencies such as the dollar and the euro. Some observers contend the price of gold, which has risen fourfold over the past decade, will only keep rising till policymakers on both sides of the Atlantic get a grip and reverse loose fiscal policies.
And there have been signs that the all-in monetary response to the crisis of 2008 has softened even the likes of Grantham on the subject of gold. He told the U.K.'s Financial News last March, just as stocks were bottoming and Grantham was telling investors to start buying, that he GMO had taken its first ever position in gold.
Since then, the gold price has continued to rise amid ever more fears of global financial distress – suggesting that perhaps Grantham's not as good at calling the top as he jokingly claims to be.