Gold Prices Glitter, but Many Investors Are Holding Tight
By Tom Risen, Santa Barbara News-Press, Calif.
Nov. 6–It seems that everybody has an opinion about gold lately, because prices for the shiny hard currency have risen 27 percent this year and are flirting with the record high, leaving investors wondering whether to cash in their gold or let it ride.
Gold reached $810 per ounce Monday on the New York Mercantile Exchange, driven by the continuing drop of the dollar and the rising price of oil.
Prices have fluctuated from the record high of $850 in 1980 following the election of President Reagan, to $257 in 2001 prior to the Sept. 11 terrorist attacks that sent them rising again.
On State Street, more and more people have been lining up selling $20,000 to $30,000 in gold to appraisers, though Paul Brombal, owner of Paul A. Brombal Coins & Jewelry, is seeing less business than expected.
“Gold has risen more than $100 since February, so more people have been coming since then,” said Mr. Brombal, “but not as many as I expected. Mostly retired people have been coming in selling their gold. People who bought gold in the 1970s, not as many people who bought in the past 15 years. A lot of people want to hang on to their gold as long as they can.”
The dollar has not been backed by gold since President Nixon removed the guarantee in 1971, and since then it has been based on consumer confidence and the faith-based buying of the bond market.
As long as the dollar stays weak and oil prices rise, then the gold market will track that, said Ronald Gillio, owner of Gillio Rare Coins & Fine Jewelry on State Street.
“With all the continuing economic factors driving the rise of gold, I think the price could reach $1,000 by the end of the year,” said Mr. Gillio.
Investing in always precious gold can become a fad in times of uncertainty, said Kipley Lytel, managing partner at Montecito Capital Management.
“It’s a flight to safety,” said Mr. Lytel. “It’s a hedge against terrorism.
Any kind of negative material impact drives the price of gold up.”
Montecito Capital Management increased the gold investment in their clients’ portfolios from 2 percent to 4 percent since 2006. Mr. Lytel said the firm has doubled its investment in gold this year and has been bullish about gold for some time, but will not be swayed by the euphoria of rising prices.
“We never forget the harsh lesson of the tech stock bubble of 2000: you don’t make anything until you sell,” said Mr. Lytel. “It’s our job to be the rational mind for our clients. It’s possible that the price of gold could reach $1,000 this year, but if the price of gold goes past the record high of $850, then we’re going to begin to draw down our investment. But we’ll always keep some gold, even if it looks pessimistic.”
Mr. Lytel said silver, which closed at $14.78 on Nymex Monday, is a less volatile investment considering there is less of it and prices are driven by its industrial uses, not as much from the fad that gold prices experience.
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