There is a revival of interest in gold and precious metal stocks, with gold breaking through the $1300 an ounce level to new highs this year. Investors are taking heed.

I think I need to reiterate a running theme in my investment philosophy. I am not one of those that believe that good economic times and higher growth is bad for gold. I am not a gold bug that believes that the US needs to go to hell in a handbag before gold can soar. In fact, just the contrary.

Gold has been bumping up against the $1300 level for some time, and finally penetrated that level. It quickly moved to the 1330 level… then good news on the economy came out and gold corrected back down to the 1300 level.A lot of commentators immediately blamed good economic data for the fall…they always do. And conversely, if the economic data is negative they attribute a higher gold price to the negativity. It seems that good news and bad news affects gold in the immediate short term since so many believe that it does. But in the long term it makes little difference.

Consider the longer term case for gold: if you are an individual or a fund manager that is predisposed to hold a portion of say 5-10% of your investments in gold, wouldn’t you accumulate gold as your wealth increased? It’s called “re-balancing”.

It is not a leap of logic therefore, to suppose that as the world’s wealth increases the demand for gold may rise, and with it the price. That is exactly what has happened in the last century. A hundred years ago, gold was $22 an ounce. Today it’s $1300 an ounce. The primary reason for the increase is inflation, i.e., more dollars chasing gold and everything else mankind wants and uses. During this hundred year period the world’s standard of living has increased greatly. Prosperity and the price of gold rose over the last hundred years.

Yet you will hear every time there’s a good economic report and gold sells off, that gold is going down due to a better economy. And worse you will hear that gold is not a store of value or a prudent investment because it doesn’t return an interest rate or dividend.