Enlarge By David Goldman for USA TODAY A 1 kilo gold bar and a 1621 Sigismund III Gold 100 Ducat coin at Stack's Rare Coins in New York. Auto sales have plunged the past 12 months. Home sales? Nothing good to report there, either. And if you're trying to sell $5 cups of coffee these days, well, good luck with that. But in this recession-racked world one thing is selling: gold. "We're selling 10 times the amount we were selling a year ago," says Arthur Blumenthal, representative for Stack's, a Manhattan bullion and coin dealer. Even as department stores slash prices, the price of gold has soared from a low of $713 in October. Wednesday, as the Standard & Poor's 500-stock index fell 0.75 points, gold leaped nearly $11 to $977.70 an ounce. The sizzle in this steak: fear. Terror that the economic system will collapse. Worries that the government will run the printing presses to pay the massive bailout program, fueling inflation and weakening the currency. "Gold is almost an insurance policy," Blumenthal says. "It will always be there, and always pay." The question: Is the fear warranted? Economists today are more worried about a long period of falling prices, not skyrocketing inflation. But to gold bugs — some of whom have been predicting hyperinflation for nearly three decades — there's no doubt. "What's going on now is just really serious, the most serious recession since the start of the Industrial Revolution," says Doug Casey, president of Casey Research and author of the 1979 best seller Crisis Investing. And if Casey is right, what's wrong with the world will be great for gold. Glittering sales Gold has become so popular that, for the first time, a gold dealer ran an ad during the Super Bowl. Cash4Gold.com's ad featured Tonight Show sidekick Ed McMahon and rapper MC Hammer talking about selling everything from gold records to gold hip replacements. Selling your old gold certainly makes more sense now than it did in April 2001, when gold hit a low of $256 per ounce. But for gold investors, buying gold near $1,000 an ounce seems to make a great deal of sense, too. Sales of 1-ounce gold U.S. Eagle coins soared to 92,000 ounces in January, vs. 22,500 ounces a year ago. "January was the best month we've ever had, and February is shaping up to be the same," says David Breahm, vice president of economic research at Blanchard & Co., a New Orleans bullion dealer. "We sold more gold in January than in all of 2007." Why the big interest in gold? Gold has always had a reputation as a store of value. It has been used as money as long as there has been money. Gold is rare, easily transportable (and concealable). And it's a noble metal, which means that it resists rust and oxidation. Quite simply, people have always valued gold. But people value gold most highly in times of crisis, because it can be used as money when paper money is worthless. During war, for example, gold soars in value when a country's chances of losing increase. People figure they can eventually buy new currency with gold. War isn't the only thing that devalues a currency: Inflation does, too. A country that simply prints more and more money eventually winds up with a worthless currency. In Zimbabwe, for example, the inflation rate is 98% a day, according to the Cato Institute, a conservative think tank. The country rolled out a $100 trillion bank note, worth about $30 U.S. dollars, in January. Both fear of financial collapse and hyperinflation is fueling the interest in gold. Stack's Blumenthal said that the gold business really took off when Merrill Lynch started to teeter in September and sold itself to Bank of America. "We saw people who have worked in financial markets for 10, 20, 30 years, buying physical gold for the first time," Blumenthal says. That's unusual: Wall Streeters often look down their noses at gold, which pays no interest and has no earnings potential. But there's no broad consensus that gold is a panacea for all types of financial ills. Peter Kendall, co-editor of the Elliott Wave Financial Forecast, thinks that the nation is headed for deflation — and when consumer prices fall, the price of gold will fall with them. "We think gold will tumble," he says. Kendall thinks gold will be a buy when it's about a third cheaper, at $600 per ounce. And, it should be pointed out, gold has lost ground to inflation from its 1980 peak of $850 to now. Adjusted for inflation, $850 in 1980 would be $2,221. Those who bought gold during the last inflation scare are still waiting for the big payoff. And many investors who have invested in gold mutual funds, which invest primarily in gold mining stocks, have been on a roller coaster. Gold funds lost 37.5% in October, according to Morningstar, and soared 21% in November. Dread ahead? James Dines, editor of the Dines Letter, has followed gold since the 1970s, and thinks that hard times ahead will drive the yellow metal higher. When government senses an economic downturn, he says, the first instinct is to cure potential deflation — falling prices — with inflation. "It's seductive logic, but it's like adding sugar to cyanide," Dines says. Dines foresees a slight economic recovery as the money from the economic stimulus kicks in. "It will look as if prosperity is returning," he says. But by 2010 or 2011, all those trillions of stimulus dollars will bite back, in the form of hyperinflation. "It's a trap from which there is no escape," he says. Douglas Casey holds similar views. He thinks that the economy is going to head into a severe contraction. "The entire world has been living above its means," Casey says. "You get wealthy by saving, and you get poor by spending more than you produce." Normally, an economic contraction leads to deflation, not inflation. But Casey says the opposite of an economic depression is prosperity, not inflation. You can have an economic contraction with inflation, as Zimbabwe is, or with deflation, as the U.S. did during the Great Depression. Like Dines, Casey thinks that the current economic downturn will eventually be an inflationary one. "The government is in the process of destroying the currency," he says. The best government action? None at all: Recessions have the seeds of their own recoveries, once all the economic excesses have been purged. "What the government should do is rescue itself from any involvement in the economy whatsoever," Casey says. At the moment, Wall Street doesn't betray a hint of concern about inflation. Bond yields, which tend to rise when inflation is a worry, are exceptionally low. The benchmark 10-year Treasury note yields just 2.9%, and the yield on 5-year Treasury Inflation Protected Securities, or TIPS, imply a zero inflation rate. The consumer price index, the government's main gauge of inflation, has declined every month since August. And wages, which contribute to a wage-price spiral, certainly aren't soaring — nor will they, as unemployment rises. Former Federal Reserve governor Lyle Gramley argues that talk of inflation is premature, to put it mildly. "We have no alternative," he says. "We have to step on the gas pedal, hard." Eventually, however, both the Fed and the government need an exit strategy. For the Fed, the strategy is relatively simple: Most of its loans are short-term, and made at its discretion. The Fed's loan terms are onerous, he says: When its borrowers can get cheaper loans, they will. Congress and the president will face hard choices in getting the federal budget under control, Gramley says. But inflation is a monetary problem more than a fiscal one, and the Fed has many tools at its disposal to whip inflation when the time comes. Nevertheless, both Casey and Dines are not entirely outside the mainstream of economic thought for once. "We're more worried about it (inflation) than might be reflected in the market currently," says Kim Rupert, managing director of Action Economics. "There's so much stimulus in the system. It's mind-boggling." If the gold gurus are correct, you should be buying gold and putting it somewhere where others can't get it. Dines, for example, recommends gold in offshore safe-deposit boxes. After all, the U.S. government restricted ownership of gold during the Depression. "I don't know of a better way to store it," he says. Casey likes gold-mining stocks for aggressive investors. But for basic protection, he recommends owning gold coins, which don't have to be assayed, or tested for gold content and purity. Dines winces at being called a perennial gold bug: He has moved his subscribers into various investments over the years. But right now, he thinks it's gold's moment to shine. "The monetary system is fundamentally flawed," he says. "You can't keep running the printing press. There's a punishment for that." Guidelines: You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. You share in the USA TODAY community, so please keep your comments smart and civil. Don't attack other readers personally, and keep your language decent. Use the "Report Abuse" button to make a difference. Read more