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- 2008 - December - 31st -

Investors dumping dollars, going for gold

Max Marbut

“O Gold! I still prefer thee unto paper,
Which makes bank credit like a bark of vapour.”

British poet George Gordon Noel Byron included that line in “Don Juan” early in the 17th century. That same sentiment is ringing true today for investors all over the world. As currency markets become unstable and projections head for the cellar, gold — one of the oldest measurements of wealth — is heading up in all forms.

The devaluation of the U.S. dollar has had a significant impact on the demand for, and therefore the price of, gold. A common way to invest in gold is to buy solid gold coins, which are struck by the U.S. Mint (part ot the U.S. Treasury Department) in West Point, N.Y. The Mint manufactures a variety of platinum, gold and silver coins in various denominations and weights up to the one-ounce American Eagle coins.

Each coin weighs 34.1 grams, with 32 grams (or 1 Troy ounce) of pure gold and an alloy metal which allows the metal to be durable enough to manufacture the coin.

The demand for the coins reached such a point in 2008 that those who sell gold coins were notified in November by the Mint that with the exception of the American Eagle Gold One-ounce and American Eagle Silver One-ounce bullion coins, all 2008-dated bullion coins have been depleted. Introduction of some new 2009 coins has also been pushed back.

The Mint can’t currently get enough of the “blanks” which are used to “strike” the coins, said U.S. Mint spokesperson Michael White. He described the 2008 demand for precious metal coins as “unprecedented.” In fact, after years of decreasing demand for the coins, demand tripled in 2008 compared to 2007 (see chart).

Bill Hatchett, owner of A-Coin and Stamp Gallery on St. Augustine Road, has been selling gold coins since 1963. He said he hasn’t seen the demand for precious metal coins and ingots climbing like it is now since 1979-80. The economy is driving sales of gold and silver coins to the highest level in years.

“We were buying more stuff back then. We’re not seeing much come in this time. The economy is down and people are looking for other ways to invest,” he said.

Hatchett also said with the government being unable to keep up with the demand for the coins, they are selling for even more than the value of the gold they contain.

“This is the strangest market I’ve seen in 25 years,” commented All-Florida Coin & Stamp owner Robert Hart, who added his customers are buying coins, but being cautious. People who are looking for a short-term investment are staying out of the gold market.

“The price of gold goes up or down every day and that instability is hurting sales. The gold market hasn’t been stable for the last two years and I don’t expect that to change any time soon,” he said.

Another way to invest in gold is through gold stocks. If the demand for gold is at an all-time high worldwide, companies that mine and refine it are likely to prosper.

Following last week’s $40 an ounce jump in the market in two days and a $150 increase in six weeks, gold stocks in Australia went up substantially and analysts predicted the surge is only beginning.

In an article published in The Daily Telegraph, Gavin Wendt, head of mining and resources with mining company Fat Prophets said he thinks gold won’t peak until it hits $1,030 an ounce.

“It has been either cash or gold. And now there is every incentive to buy only gold as the U.S. dollar is likely to fall with all the interest rate cuts and stimulus packages that have been implemented,” he opined.

Rob Slimmon, vice president of NestEggs, Inc. retirement planning services, said he’s advising clients to be cautious when it comes to investing in gold stocks.

“There are investors who believe gold will be the beneficiary of inflation, but we maintain a strict discipline of diversification,” he said.

When asked his opinion of an investor liquidating everything else to invest in gold, Slimmon said, “We would not endorse such a move by any of our participants.”

Precious metal coins sold (in ounces)

2005 2006 2007 2008
Platinum 20,000 13,550 9,050 33,700
Gold 449,000 261,000 198,500 764,000
Silver 8,405,000 10,021,000 9,887,000 18,258,500

Source: U.S. Department of the Treasury

Photo by Max Marbut

mmarbut@baileypub.com

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