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Should You Be Catching Gold Fever?

Posted on: Monday, 3 October 2005, 21:00 CDT

By Amy Baldwin, The Charlotte Observer, N.C.

Oct. 3--You could say the first gold rush of the 21st century is under way.

Gold prices are near 17-year highs, hovering around $470 an ounce. Some analysts and investors believe it will hit $500 and might not stop there.

So should gold be part of your investment portfolio?

Gold has long been the choice -- almost the exclusive choice -- for fatalist sort of investors, those who want currency in case banks or governments collapse. Lesser pessimists might dedicate a smaller piece of their portfolios, say 10 percent, to gold.

Dan Miller falls into the latter category.

"I've been buying. I think it could go up a little higher," said Dan Miller, owner of Queen City Jewelers in Charlotte. He's been doing some selling, too, most recently a couple months ago when he needed to raise money to order merchandise for the holiday season. About 6 percent of his wealth is in gold.

The reasons for the gold-price run-up vary. Some think inflation is a bigger threat than what the Federal Reserve indicates. Others say it's high demand from China and India.

In any event, it's up roughly 50 percent in the past three years. Gold closed at $472.30 an ounce Friday on the New York Mercantile Exchange. On Thursday, prices closed at $475.80, the highest since January 1988. By comparison, gold averaged $309 an ounce in 2002, according to historical data from dealer Kitco Precious Metals' Web site, www.kitco.com.

Gold is a hedge against economic woes, such as inflation, or a declining stock market. If the rest of your portfolio is going up, you won't need to rely on it, but when stocks or bonds or real estate pull back, you'll be happy you have an investment with intrinsic value, said Dale Hege, a salesman at Independence Coin in Charlotte.

"We call it economic insurance," Hege said.

Want to get your hands on some cold hard gold?

First, consider that buying now means you could be getting in at the top of the market -- doing just the opposite of the Wall Street adage about buying low and selling high.

If that doesn't deter you, you'll want to contact a gold dealer, which you can find in the phone book or online, or coin shop. You'll pay a percentage above the market price, referred to as the spot.

Generally, gold dealers trade in both bullion and numismatic coins. Bullion is the modern gold commodity, and its value is purely in its gold content. Bullion comes in bars and coins.

Collectible coins, called numismatics, are valued both for the gold in them and their rarity, beauty and history. Some coin stores will deal in bullion, but it is not their specialty.

Before you buy gold, you should consider why you are buying it. That will determine what you should purchase.

If you want to preserve your wealth, go with bullion, which because it is a commodity is the safest form of pure gold, said Jonathan Kosares, account executive at USA Gold, a dealer in Denver. You can typically buy as small a piece as a tenth of an ounce, which would run you about $47 these days.

If you want to build wealth, consider numismatic coins, which are riskier because their value has to do with more than just their weight, Kosares said.

Another thing to keep in mind: You don't have to stash bars or coins in your safe deposit box to have exposure to gold. You can buy gold-oriented mutual funds, which focus on shares of companies that mine and sell gold. They're one of the year's best performing fund sectors, according to fund tracker Lipper Inc. With a year-to-date return -- as of Thursday -- of 15.1 percent, gold funds are outpacing every category of U.S. diversified stock funds. -- The Associated Press contributed.

GOLD PRICES

--Closed Friday at: $472.30

--A year ago: $409.72 was cumulative average for 2004.

--Three years ago: $309.73 was the cumulative average for 2002.

Source: www.kitco.com

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Copyright (c) 2005, The Charlotte Observer, N.C.

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Source: The Charlotte Observer (Charlotte, N.C.)

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