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Megan McArdle, the business and economics editor for The Atlantic, has bravely confronted the remarkable bull market in gold with a couple of blog hits that challenge some of the assumptions behind gold's rise above $1,400 (U.S.) an ounce.

First, she declares that it looks like an asset bubble - or "bubblicious," as she calls it - because inflation isn't set to skyrocket: "It's not that quantitative easing may not cause inflation - it might. In fact, that's sort of the point; the Fed wants a little more inflation in the money supply, in order to ease the unemployment rate. But consider how much inflation there would have to be for this gold price to make sense. Even assuming that something like the July 06 price of $550 is a more natural price, the price of gold is now almost triple that. Are we going to get 10 per cent inflation a year for a decade or so out of this quantitative easing? Not really very likely."

Then, she goes after the notion that bullion is a safe haven during troubled times: "I'm going to dispute the notion that gold is a good hedge against the apocalypse. In the event that the U.S. economy melts down so far that buying gold was a good alternative to holding U.S. dollars, then buying canned goods, ammunition, and medical supplies was an even better alternative to gold. The only scenario I can think of in which it makes sense to stockpile a lot of gold is one where you and your household goods are unexpectedly teleported into the sixteenth century."

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The problem with these arguments is that they fail to address what most gold investors see as the primary reason why the metal has been rising into record territory: Forget about inflation, central banks are flooding the world with money, devaluing their currencies in the process, and sending some investors into alternative assets. Gold is a popular alternative right now.

The other problem with the argument against gold is that it never really changes: Whether gold is trading for $1,400 an ounce or $300 an ounce, you can always point to its lack of industrial uses and its limited use during an economic apocalypse.

It seems to me that arguments for or against holding gold as an investment invariably come down to where your speculative sympathies lie, rather than persuasive views. That said, I found Jeremy Grantham's recent take on gold amusing. In his GMO quarterly letter to clients, Mr. Grantham outlines why gold is not a great investment...but he owns it nonetheless.

"I would say that anything of which 75 per cent sits idly and expensively in bank vaults is, as a measure of value, only one step away from the Polynesian islands that attached value to certain well-known large rocks that were traded," Mr. Grantham said.

"I own some personally, but really more for amusement and speculation than for serious investing. It may well work and it may well not. In the longer run, I believe that resources in the ground, forestry, agriculture, common stocks, and even real estate are more certain to resist any inflation or paper currency crisis than is gold."

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