Good as gold

When the value of the dollar sags and investments sour, gold glitters even more brightly.

On the heels of the dot-com and real estate bubbles and the stock market meltdown, investors are snapping up gold.

"We're doing four to five times more business now than we did in 2000," said John Cotta of Rogue Valley Coin & Jewelry Exchange. "It really increased through 2008 and we've had new people even in the last two or three months.

With all this bailout going on, investors aren't sure what's happening. A lot more people are diversifying their portfolios right now."

The price of gold has nearly quadrupled in the past eight years from its post-Y2K level of about $250 an ounce. The surge began in 2003 and the spot price topped $400 in 2005. Even as investment dollars poured into real estate, the gold bandwagon was on the move.

During 2008, an ounce averaged $872, up 25 percent from its 2007 average of $695. It has crested above $1,000 this year and was selling for $927.20 on Thursday.

"Gold used to go inverse to the dollar," Cotta said. "If the dollar went up, it went down. Now, a lot of times, gold goes on its own."

The World Gold Council reported last month that investor interest in gold in 2008 helped push dollar demand for the safe-haven asset to $102 billion, a 29 percent increase over 2007 levels. As shares on stock markets around the world lost an estimated $14 trillion in value, identifiable demand for gold, including exchange-traded funds and bars and coins, increased 64 percent — by $16 billion — in 2008 over 2007.

The 21st-century stampede is less conspicuous than the mass movements of humanity to California, Colorado, Nevada and Alaska in the 1800s. Instead of a frontier rush present-day gold-seekers are buying American Eagle, Canadian Maple Leaf and South African Krugerrand coins. They're also buying shares in mining companies and relatively new paper certificates, known as exchange-traded funds.

"People believe the price of gold is going to go up and others see it as a way to preserve assets against inflation," Cotta said. "If the dollar continues to lose its value, people are buying gold as insurance."

According to National Geographic, only 161,000 tons of gold have been mined in human history — barely enough to fill two Olympic-sized swimming pools. More than half of that has been extracted in the past 50 years. ETF holdings, which the World Gold Council reported climbing 27 percent last year, represent far more gold ownership than actually exists.

That alone, Cotta said, encourages the sale of coins and ingots.

In recent years, the U.S. minted gold buffalo coins in one-tenth-, one-fourth- and one-half-ounce forms, Cotta said. But that's stopped because the mint can't get sufficient quantities of gold supple enough for the stamping process.

Nonetheless, investors can buy gold, silver, platinum and palladium from dealers. Gold comes in 3-ounce ingots. The premium, where dealers earn their cut, runs between $35 and $70, Cotta said, depending on the spot price and market conditions.

Of course, the record for 30 years shows gold has its limitations. The Wall Street Journal reported last year that to keep pace with inflation since 1980, gold would have to be selling for well over $2,200 an ounce.

Share This Story