luft97
03-12-2009, 09:16 PM
Dr. James Comazzi recently made an unusual purchase for his 13 employees. The Sonora, Calif., cardiologist sold $200,000 of mutual funds in the employee pension plan and used the proceeds to buy gold coins. He sees the new investment, now stored at a bank, as an insurance policy against tough times.
The rush is on. Across the country ordinary Americans are buying gold as if they’re hard-core “goldbugs,” the longtime fans who believe the precious metal is always the best investment. Spooked by the stock market crash and the deepening recession, investors bought a net $9.7 billion worth of gold last year through exchange-traded funds, according to the World Gold Council.
Anxious buyers are also scooping gold coins as fast as the government can produce them. From September 2008 through January, the U.S. Mint sold 816,500 American Eagle gold coins—more than triple the sales from the same period a year earlier—and is now rationing some types of coins until it can catch up with booming demand. Gold dealers say demand skyrocketed immediately after the bankruptcy of brokerage giant Lehman Brothers in mid-September. “Investors are scared,” says David Beahm, vice president for economic research at Blanchard & Co., a large New Orleans–based coin dealer. “They’re looking for something that won’t go to zero overnight.”
Gold is often thought of as the currency of last resort, the one thing that retains its value when stocks, currencies and everything else are falling apart. But while the precious metal isn’t about to go to zero, it has a remarkably unreliable history. Yes, gold has more than tripled its value since 1999, trouncing the Standard & Poor’s 500 stock index. But gold’s long-term track record as an investment has been much shakier—inconsistent at best and a huge money loser at worst.
And in a puzzling twist, when stocks and the financial system were falling apart this past fall, gold prices fell hard, more than 30 percent from March through October. Whether gold, which trades at about $900 an ounce, (and briefly broke $1,000 in late February), will continue its decade-long climb is a multibillion-dollar question now that individuals are selling stocks, bonds and even houses to stock up on the precious metal.
The fascination with gold as a currency certainly isn’t new. The indestructible yellow metal has been used in coins since around 550 B.C. The United States has used paper money since the country was founded, but until 1933 savers could still bring U.S. paper money to the bank and exchange it for gold. However, gold has taken a backseat to paper currency since 1971, when President Nixon stopped pegging the value of the U.S. dollar to a fixed amount of gold. Gold buying surged around 1980, when the metal price soared as people sought something that would retain value during a period of rampant inflation. But when inflation waned, gold began a steady, two-decade-long price decline.
But gold investing has surged again, spurred by the ongoing financial crisis, both buyers and dealers say. Professional money managers also have turned to gold in increasing numbers. Steven Rogé, comanager of the Rogé Partners fund, bought gold through an ETF in November for the first time, seeking a hedge against inflation. Gold is viewed as good insurance because it should, in theory, retain its value even if inflation eats away the purchasing power of the dollar. Rogé thinks inflation could rise to 8 percent a year in three to five years, as the government spends hundreds of billions of dollars of borrowed money to jump-start the economy.
It’s the mom-and-pop investors, not the pros, who are causing problems for the U.S. Mint. The Mint has sold so many gold coins that it keeps running out of gold blanks—the metal discs that the Mint strikes with an eagle, buffalo or other image to turn it into a legal coin. One of the companies that makes the blanks for the Mint, Sunshine Minting, has more than doubled its gold production capacity in Coeur d’Alene, Idaho, and hired 15 new employees to handle the extra gold-related work, says Tom Power, the company’s president. Even so, he admits, “we’re way, way behind on trying to meet physical demand.”
Delays at the Mint have made it tougher for both suppliers and retail customers to get the gold they want. Wholesaler Michael Kramer had been used to an armored car pulling up outside his New York City vault, dropping off bullion and coins as often as three times a week. Now, he says, he gets only one delivery a week. At U.S. Coins in Houston, customers have had to wait nearly two weeks for the delivery of their gold, compared with less than a week before demand spiked last fall, says assistant manager Nick Koutsodontis.
But is gold really worth all the fuss? Last fall, when economic fears mounted and the stock market tanked—just the conditions that might ordinarily cause a run-up in gold—the spot price of gold inexplicably dipped. Gold hit a closing high of $1,003 an ounce in March 2008 on the collapse of Bear Stearns and inflation concerns, and fell to as low as $682 in October, even as global demand for gold bars was up 69 percent over the third quarter of 2007. Theories abound regarding what happened. Some say the massive deleveraging process—the unwinding of financial positions by hedge funds and banks—artificially pushed down the price of gold and other assets. Indeed, hedge funds were forced to sell high-quality assets, including gold, to meet margin calls and investor redemptions.
As long as the economy stays weak, some analysts expect gold to retain its luster. Inflation could return as the economy absorbs all the dollars injected into it by the U.S. government, potentially making gold a good hedge. Some professional investors are using gold as a placeholder because they don’t find any of the major currencies attractive, says Robert C. Doll, global chief investment officer of equities for BlackRock, an asset-management firm.
For his part, Kramer, the gold wholesaler, doesn’t care about gold’s actual price. He makes money off the spread, or the difference between what the Mint charges him and what he charges his customers. The Mint never increases the markup it charges Kramer over the spot price of gold, but Kramer has been able to increase his price to dealers. “Everyone’s making more money,” Kramer says. “Business is fun when it’s like this.”
http://www.smartmoney.com/Investing/Economy/Protect-Your-Money-Time-to-Buy-Gold/
That's a smart guy. Think what would happen if everyone did this.
The rush is on. Across the country ordinary Americans are buying gold as if they’re hard-core “goldbugs,” the longtime fans who believe the precious metal is always the best investment. Spooked by the stock market crash and the deepening recession, investors bought a net $9.7 billion worth of gold last year through exchange-traded funds, according to the World Gold Council.
Anxious buyers are also scooping gold coins as fast as the government can produce them. From September 2008 through January, the U.S. Mint sold 816,500 American Eagle gold coins—more than triple the sales from the same period a year earlier—and is now rationing some types of coins until it can catch up with booming demand. Gold dealers say demand skyrocketed immediately after the bankruptcy of brokerage giant Lehman Brothers in mid-September. “Investors are scared,” says David Beahm, vice president for economic research at Blanchard & Co., a large New Orleans–based coin dealer. “They’re looking for something that won’t go to zero overnight.”
Gold is often thought of as the currency of last resort, the one thing that retains its value when stocks, currencies and everything else are falling apart. But while the precious metal isn’t about to go to zero, it has a remarkably unreliable history. Yes, gold has more than tripled its value since 1999, trouncing the Standard & Poor’s 500 stock index. But gold’s long-term track record as an investment has been much shakier—inconsistent at best and a huge money loser at worst.
And in a puzzling twist, when stocks and the financial system were falling apart this past fall, gold prices fell hard, more than 30 percent from March through October. Whether gold, which trades at about $900 an ounce, (and briefly broke $1,000 in late February), will continue its decade-long climb is a multibillion-dollar question now that individuals are selling stocks, bonds and even houses to stock up on the precious metal.
The fascination with gold as a currency certainly isn’t new. The indestructible yellow metal has been used in coins since around 550 B.C. The United States has used paper money since the country was founded, but until 1933 savers could still bring U.S. paper money to the bank and exchange it for gold. However, gold has taken a backseat to paper currency since 1971, when President Nixon stopped pegging the value of the U.S. dollar to a fixed amount of gold. Gold buying surged around 1980, when the metal price soared as people sought something that would retain value during a period of rampant inflation. But when inflation waned, gold began a steady, two-decade-long price decline.
But gold investing has surged again, spurred by the ongoing financial crisis, both buyers and dealers say. Professional money managers also have turned to gold in increasing numbers. Steven Rogé, comanager of the Rogé Partners fund, bought gold through an ETF in November for the first time, seeking a hedge against inflation. Gold is viewed as good insurance because it should, in theory, retain its value even if inflation eats away the purchasing power of the dollar. Rogé thinks inflation could rise to 8 percent a year in three to five years, as the government spends hundreds of billions of dollars of borrowed money to jump-start the economy.
It’s the mom-and-pop investors, not the pros, who are causing problems for the U.S. Mint. The Mint has sold so many gold coins that it keeps running out of gold blanks—the metal discs that the Mint strikes with an eagle, buffalo or other image to turn it into a legal coin. One of the companies that makes the blanks for the Mint, Sunshine Minting, has more than doubled its gold production capacity in Coeur d’Alene, Idaho, and hired 15 new employees to handle the extra gold-related work, says Tom Power, the company’s president. Even so, he admits, “we’re way, way behind on trying to meet physical demand.”
Delays at the Mint have made it tougher for both suppliers and retail customers to get the gold they want. Wholesaler Michael Kramer had been used to an armored car pulling up outside his New York City vault, dropping off bullion and coins as often as three times a week. Now, he says, he gets only one delivery a week. At U.S. Coins in Houston, customers have had to wait nearly two weeks for the delivery of their gold, compared with less than a week before demand spiked last fall, says assistant manager Nick Koutsodontis.
But is gold really worth all the fuss? Last fall, when economic fears mounted and the stock market tanked—just the conditions that might ordinarily cause a run-up in gold—the spot price of gold inexplicably dipped. Gold hit a closing high of $1,003 an ounce in March 2008 on the collapse of Bear Stearns and inflation concerns, and fell to as low as $682 in October, even as global demand for gold bars was up 69 percent over the third quarter of 2007. Theories abound regarding what happened. Some say the massive deleveraging process—the unwinding of financial positions by hedge funds and banks—artificially pushed down the price of gold and other assets. Indeed, hedge funds were forced to sell high-quality assets, including gold, to meet margin calls and investor redemptions.
As long as the economy stays weak, some analysts expect gold to retain its luster. Inflation could return as the economy absorbs all the dollars injected into it by the U.S. government, potentially making gold a good hedge. Some professional investors are using gold as a placeholder because they don’t find any of the major currencies attractive, says Robert C. Doll, global chief investment officer of equities for BlackRock, an asset-management firm.
For his part, Kramer, the gold wholesaler, doesn’t care about gold’s actual price. He makes money off the spread, or the difference between what the Mint charges him and what he charges his customers. The Mint never increases the markup it charges Kramer over the spot price of gold, but Kramer has been able to increase his price to dealers. “Everyone’s making more money,” Kramer says. “Business is fun when it’s like this.”
http://www.smartmoney.com/Investing/Economy/Protect-Your-Money-Time-to-Buy-Gold/
That's a smart guy. Think what would happen if everyone did this.