Soaring gold price sparks area investors' interest

Clyde Englehardt pours out a bucket of scrap gold sold to his Toledo Coin Exchange.

The Blade/Andy Morrison
Buy This Image

Clyde Englehardt pours out a bucket of scrap gold sold to his Toledo Coin Exchange.

As U.S. financial markets move like a Yo-Yo, some local investors are cutting risk by embracing the golden rule: He who has the gold, rules.

Gold prices are up nearly 55 percent from this time last year, and investors are moving money out of stocks and other instruments into gold stocks, coins, and bullion bars.

"They aren't just buying gold futures. I'm seeing more people interested in physically taking possession of it than ever before," said Howard Cook, owner of HCC Inc., a rare-coin dealership in Holland.

He wouldn't be surprised if some investors, mainly elderly ones, are taking gold "and burying it in the back yard" or hiding it in their homes.

"I think there's a general fear and that people want to own some gold," he added.

Since mid-August, New York gold futures have risen more than 42 percent. On Monday the price hit a record of $927.10 an ounce. A year ago, prices were about $600 and until recently the previous high for gold was about $850 in 1980.

Prices for scrap gold have been pushed higher.

Experts said the rise in gold is mainly a response to the declining value of the U.S. dollar.

Richard DeKaser, an economist with National City Corp. in Cleveland, said gold prices often rise if global economic growth is strong or if inflation threatens. But those factors are only part of the current story, he said.

In the United States, investors appear to have lost trust in the country's financial system and a strong dollar, said financial planner Don Roork, owner of AssetDynamics Inc., in Sylvania.

"People want gold as a little security," he said. "I'm doing that personally. There's something to be said for that. But you've got to hold onto it for a long time."

As a hedge against inflation, gold has been a lousy investment. Going back to 1980 prices, gold futures would need to be over $2,228 today to have kept up with inflation.

Some speculate gold will rise above $1,000 soon, but Mr. Roork said the price seems "a little stretched" now.

However, the price has spurred some to sell gold, such as jewelry, said Clyde Englehardt, owner of the Toledo Coin Exchange Inc.

"Women are coming in and selling us stuff and when they see the prices that are being paid, they go home and clean out their jewelry box," he said. Three to five people are waiting with gold items now each day he opens the store, he said.

Paul Duggan, a lawyer in Bryan who in the 1980s delivered buy-sell orders to traders in the gold commodity pit on the Chicago Mercantile Exchange, has some advice. The key, he explained, is knowing that the price of gold rises and falls periodically, and right now it is headed up.

He entered The Blade's Stock Market Contest this year and chose four gold-processing firms for his imaginary portfolio. The contest runs through the end of the year, and the entrant whose portfolio increases the most in 2007 will win a trip and cash.

"If oil goes back up, gold is going to go with it," he said. "At this point, it's only got an upside."

Financial planner Ron Gould, of Ron Gould & Associates in Sylvania, advises his clients to steer clear of the shiny metal unless they know exactly what they are doing.

"Once in a while I get a question on gold then I ask, 'What kind of gold are you going to buy?'•" he said. "Most of them don't know. They just want to buy gold because they heard it was a good investment."

He said: "I tell them play with gold if that's your entertainment money."

Otherwise, stick to less volatile investments, he added.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128.