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Gold's Been Glittering: Investors Are Making Metal Truly Precious Again

Posted on: Friday, 29 February 2008, 09:00 CST

For wedding ring bands and crowns, gold reigns supreme.

But as an investment, it's superiority depends on which side of the fence one sits on.

Traditionally, financial experts and those on Wall Street shy away from the precious metal.

"Good luck trying to out-guess a gold market that is purely speculative," one there might say.

Gold dealers say that's hogwash.

"If you feel the economy is headed for the pits, then you should assume gold is headed to the heavens," is their counter.

For now, the pro-gold side has the numbers to back its claim. At the end of 2000, an ounce of gold was $272.15 per ounce. On Friday, it closed at ($9).

"Wall Street has to start changing its opinion with the way gold prices are going up," said Michael Kosares, author of "The ABCs of Gold Investing.""I feel there's always a market for gold."

Not to be mistaken with gold stocks or commodities, the purchase of gold coins or bars is seen by those who own them as comforting during a time when the U.S. economy is filled with uncertainty.

The feeling among numismatists is that gold is worldwide tender and is "good as cash." If the U.S. dollar goes sour, you can liquidate your gold regardless.

"The belief is that paper currency is going to lose its purchasing power, while gold will always be able to sell," Kosares said.

In the past decade, gold prices have soared amid the Sept. 11, 2001, attacks, war in Iraq and several major Wall Street scandals, such as Enron,

WorldCom and Tyco.

"I think it is the ultimate insurance policy or defensive mechanism against currency depreciation," Kosares said. "I see gold as a long-term portfolio item that protects you from local currency depreciation."

The problem, though, is that no one can say for sure what's going to happen to gold prices in the future.

That's why it's often referred to as the ultimate speculative market.

When a person buys stock in a company, they can research the executives, look at its cash balance and predict what products or services might be coming down the pipeline to determine whether it will flourish or struggle.

With gold, the idea that it does better when the economy struggles is more a presumption than a rule of thumb, said George Feiger, a financial expert with Contango Capital Advisors in Berkeley.

Feiger owns gold, but says he does so because of people's perception of gold, and not on any economic reason. He calls the economic characteristics of the metal as "ridiculous."

Where other commodities are often determined by supply versus demand, with gold that isn't the case.

"Except for those in ship wrecks at the bottom of the ocean, every piece of gold found is still in existence today," Feiger said.

So why then have so many people settled on gold?

"Simply put, they have because they have," said Feiger, who views gold similar to art. "It's something that is based on collective illusion.

"It will only go up if there are enough people out there that believe they should buy gold," he said.

James Turk owns Goldmoney.com, which allows people to purchase physical gold already stored in vaults overseas. He considers gold to be one of the most "misunderstood assets."

"I don't see gold as if it were a commodity with some jewelry fabrication and unimportant industrial application," Turk said. "Gold is produced for accumulation, and it's hoarded not because it's an investment but because gold is money."

Historically, gold has seen its share of peaks and valleys since President Nixon detached the link between it and the U.S. dollar. It was then that "gold floated" on its own, and by the end of 1974, gold prices rose from $35 to $195 an ounce. And in 1975, it became "legal" for individual Americans to own it.

In the early 1980s, investors who were into gold were enticed to go back into paper money because of a large rise in interest rates. As a result, gold prices dropped from more than $800 an ounce to below $300 by 2000.

"It's doing well right now, but how high it will go is the question that no one has the answer to," said Vince Lacariere, owner of the Fremont Coin Gallery. "But right now, I'm looking to buy gold."

For those who decide to buy gold as an investment or hedge, you need to do some research first.

"Read books, real gold investment newsletters and get the knowledge before you buy the gold," said James DiGeorgia, editor and publisher of Gold and Energy Advisor. "Know what you're getting, and who you're getting it from."

Most gold investors buy either coins or bars. By far, the most popular of these two are one-ounce bullion coins.

Although bars may look more glamorous, coins have some imbedded investment advantages.

The coins can be converted to cash much more easily than bars; they're easy to transport; and a minted gold coin has a standardized measure of weight and purity. With gold bars, the purity, weight and legitimacy of the gold can be questioned, and often a dealer will insist it be melted for verification.

Currently, the two most commonly traded gold coins in the U.S. are the $50 American Eagle and the $50 Canadian Maple Leaf, which each contain one troy ounce of gold. A troy ounce, which is about 31.1 grams, is the universal measure by which gold is weighed and traded. Even though the coins have a $50 face value on them, they sell at fluctuating prices based on the price of gold -- which today would be 18 to 20 times their face value.

The main difference between the American Eagle and the Canadian Maple Leaf is in their purity. The Canadian Maple is 24-karat pure gold, while the American Eagle is 22 karats. If one plans to sell the coins in certain Asian markets, a pure gold coin may be favored because sometimes it's melted.

But to determine how much the coin can be sold for, it's the weight, not the purity, that's the determining factor.

Coins with fractions of ounces can be bought for those who don't want to shell out $950 for a full ounce..

Some people may get lured into buying commemorative coins at stores and on the Home Shopping Network. But unless you have a dealer you can trust, or have a confident grasp on what you're buying, experts say it's best to steer clear of this area, especially if you're a novice gold buyer.

Collectible coins are special coins to commemorate events or people and can be issued by governments or private companies. They are mostly issued in limited quantities over a short time span.

Unlike the bullion coins, collectible coins can often cost more then they're actually worth.

Often referred to by investors as "proof coins," people think because it's for an event, such as the Olympics, that it must be a great investment. In truth, the market value is most likely worth exactly what the value of the gold is in the coin. And most cases it's far less than an ounce.

Although gold has proved to be a good investment in the past few years, it's uncertain whether the surge will continue. For this reason, financial experts and gold experts advise limiting your exposure.

Financial advisors often suggest having 10 to 15 percent of one's portfolio be alternative investments such as gold and art.

"Put some gold away, and take it out as if it was money you were taking out of your savings account," Kosares said. "As long as we're in a fiat money system, I feel gold needs to be a permanent aspect of the portfolio."

Source: Contra Costa Times

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