Finding any sense of normalcy in the wake of tragedy is comforting in a way that personal connections cannot always provide. As I rode the subway in New York on Tuesday morning, I felt a sense of calm in the hustle and bustle that I knew would not be waiting for me when I reached downtown Boston. The New York Stock Exchange held a moment of silence at 9:20, ten minutes before the market's open ? and then it was back to business as usual. Events like the ones that transpired Monday make us hold our loved ones a little closer, smile a little more brightly, and realize the little joys in our day-to-day lives, from cell phones and coffee to hiccups and hickeys.
So for my own peace of mind - and continuing with what hopefully has become a part of your Wednesday morning routine - let's talk about money.
In a move that began Friday and stretched over the weekend into Monday, gold fell nearly nine percent to $1,345 per ounce. Though it certainly looks good in a necklace and glimmers in a way that my Canal Street watch never will, gold gets most of its value from its philosophical concept, as a hedge against every investor's worst nightmare: inflation.
To spare you an economics lesson, inflation relates to purchasing power. If $1 today buys you a can of soda, but you need $2 to buy the same can in a year, we say that the dollar has "inflated" 100 percent. Some inflation - around two percent annually - is good for the economy.
Rapid inflation, however, can lead to uncertainty and lending concerns, since the growth of an investment must outpace the inflation rate to break even. Hyperinflation, as was the case in post-Weimar Republic Germany and more recently Zimbabwe, can lead to the breakdown of the entire monetary system of a country.
So what does this have to do with gold? For most of our country's history, the dollar's value was based entirely on gold. The Federal Reserve banks held - and continue to hold - gold in their vaults, and each dollar in circulation used to be able to be redeemed for a physical piece of gold.
Since the onset of the Great Recession and various Euro Crises, gold has enjoyed a wild ride, surging to an all time high of $1,921 in September 2011, but falling 28 percent since then. Though the global economy has settled down, the recent Cyprus bailout may force the Cypriot and other European central banks to sell some of their gold reserves, increasing supply and driving prices down.
Though some politicians have campaigned for a return to the gold standard - the actual gold standard, not the idiomatic sense - so-called "floating" currencies offer greater flexibility in times of rapid economic growth and decline. If the dollar were tied to gold, the price of a candy bar would fluctuate with every new mining find.
Because of its historic value - several thousand years of demand - gold is largely viewed as a safe haven and store of value within common investments. Its recent surge in value has lead to the creation of numerous gold exchange traded funds (ETFs), the sole purpose of which is to own gold. Though few investors own physical gold in a vault, many have bought into these ETFs or gold mining companies to diversify their portfolios.
Hedge fund billionaire John Paulson lost about a billion dollars from gold's two-day move, but even such a massive sum of money pales in comparison to the importance of friends and family on a day like today. Call your parents, hug your RA, go for a long walk with that special someone, and be thankful that those who are here are, in fact, here.
And buy gold.
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Walt Laws-MacDonald is a sophomore majoring in quantitative economics. He can be reached at Walt.Laws_MacDonald@tufts.edu.
