Gold Prices Shine

By Schouten, Cory

Gold sales typically account for only 10 percent of sales for Lost Dutchman Rare Coins in Lawrence. But lately, gold is a hot commodity. About 40 percent of Lost Dutchman’s recent sales have been in the precious metal. Proprietor Matt Dinger is cycling through about 20 ounces a week, and he’s mainly selling to investors seeking a safe haven in a tumultuous market.

Gold hit a 28-year high of more than $750 an ounce in October, fueled by a weak dollar, record-high oil prices and fears of inflation. Gold had traded for less than $300 an ounce as recently as 2001.

Gold’s price gains in recent years are impressive, but the flashy numbers fade a bit when adjusted for inflation. Gold last traded above $750 in January 1980, and the price then translates into more than $2,000 in today’s dollars.

The strength in gold prices has helped to introduce new ways to invest or cash in on high values, including late-night infomercials for services such as Gold-Kit, which asks customers to mail in their gold in exchange for a check in the mail. Neighborhood shops also are getting in the game.

But individuals don’t have to lug around the shiny stuff to invest in gold. They can buy and sell shares that track the gold market. The largest gold exchange traded fund, U.S.-based Street Tracks Gold Trust, trades under thesymbol GLD. Investors also can buy shares in mining companies such as Barrick (ABX), Goldcorp (GG) and Newmont (NEM).

A glittering investment?

Local investment advisers say it’s a tough call whether now is a good time to get into the gold game – and whether investing in gold is ever a good idea.

“Whether it’s a good investment or not, that’s difficult,” said Chris Cooke, managing director of investments at locally based Cooke Financial Group, a part of Wachovia Securities. “The recent high argues you should be a seller. But gold is a store of value during inflationary times.”

Cooke said he never personally has been a gold investor, and he cautioned that retail investors have a history of buying high and selling low. Those who bought gold at its last peak, in the 1980s, have only now recovered their value and lost money with inflation.

Gold traditionally has been, at best, a “push” against inflation, Cooke said.

“Gold has been a store of value during difficult times since man began evolving,” Cooke said. “Today there’s a growing middle class around the world, and demand for gold is going up.”

Silver and gold

David Hendrickson sees it firsthand. He’s a partner at Winchester’s SilverTowne, one of the largest gold bullion dealers in the U.S. The company, which has 100 employees, sells roughly $100 million in bullion a year, mostly in the form of coins or gold shot (like bullets).

SilverTown’s gold business, which accounts for about half the company’s sales, is up this year. One customer came in recently to buy a “couple hundred thousand dollars” in gold coins after selling some land, Hendrickson said.

“There’s a lot of uncertainty out there, a lot of monetary problems,” he said. “A lot of people concerned about the stock market topping out now that it’s above 14,000.”

Naturally, Hendrickson is bullish on gold. It’s helped build the family business, started by his father in the 1940s. Leon Hendrickson had a restaurant and sold coins from the restaurant. The restaurant business was flat, but the coins took off.

“Everything tops out someplace, no matter what it is,” Hendrickson said.”But I think the metals have some legs to run yet.”

Hendrickson, who has personal positions in gold, believes historical highs of more than $1,000 per ounce are possible. He also points out that the ratio of gold to silver is way out of whack, with silver trading at a big discount.

But metals aren’t an investment for everyone.

“We don’t view it as a long-term viable asset class,” said Matt Haab, a wealth management partner at Indianapolis-based Veros Partners. “It’s more of a trading opportunity in terms of a sector play.

And if you’re looking for a sector play, gold could be a good bet. Demand continues to grow, as a growing middle class in Asia continues to introduce more potential buyers, Haab said. Some other analysts expect gold could rally to more than $1,000 an ounce.

But be careful: Gold goes through boom and bust cycles, so you have to know when to get out.

“I don’t think the ride’s over in terms of the movement up and the strength,” Haab said. “But I also think once the ride is over, there could be significant downside.”

Copyright IBJ Corporation Nov 26, 2007

(c) 2007 Indianapolis Business Journal. Provided by ProQuest Information and Learning. All rights Reserved.