Share this article

print logo

Gold's glitter lures in bad times; Precious metal offers safe harbor when stocks tank

Sinfully seductive, gold almost looks good enough to eat. It shimmers in bullion. It coos like a songbird perched on her wedding finger. It inspires melodies and mayhem.

And when the going gets tough, as the going has gotten in financial markets all over the world these days, gold gets ever more golden. Part inflation hedge, part emotional touchstone, this most mesmerizing of metals continues its gravity-defying climb, jumping 300 percent since 2000. At the beginning of June, it hit an all-time high of $1,254. It then dropped a bit but still has outperformed stocks, bonds and other commodities this year. As financial markets around the world creak beneath mountains of debt, everyone from central banks to individual investors have jumped into gold.

Gary Watkins loves the stuff. In fact, the Campbell, Calif., realtor loves gold so much that he put pretty much every dollar he had into it a year ago, then sold it all for a tidy profit last week before it dropped, just so he could turn around and buy it again.

"I can't believe how much debt this country is in, so I put my money into what I consider a safe haven," said Watkins, the 58-year-old father of two grown kids. "I personally think we're going to go bankrupt. I'm not paranoid or a doomsayer or a survivalist. I'm just a middle-aged guy who looks at the whole picture and makes my own determination. Gold prices will rise soon, and I'll buy it and ride it back up."

Watkins is not alone in seeking a safe harbor.

"Gold," said Jason Toussaint with the World Gold Council, "has a 5,000-year track record of preserving wealth. During times of market crisis there's a flight to safety, and gold makes a strong candidate for a long-term strategic asset."

As its price keeps breaking records, and the debate continues over the wisdom of investing in it, gold remains an exotic money-management tool as well as a phenomenon subtly woven into all of our lives. Steeped in history ever since history was first recorded, gold has held up a mirror to the human experience. It has served as a basis of monetary policy, been worshipped in religious ceremonies and fulfilled such practical needs as crowns for broken teeth.

"Gold has a set global price at any time, so it's implicit money," said Santa Clara University economics professor Fred Foldvary. "It's not necessarily used for transactions, but implicitly it is money. And it's been used that way for thousands of years."

As a longtime student of gold as well as an investor in it, Foldvary has spent the past ten years in the classroom sharing his take on this time-honored linchpin of financial markets. He can rattle off reasons that nations and individual investors own gold -- a hedge in times of turmoil and currency declines, a way to diversify, a financial bird in hand.

To hear Foldvary tell it, gold's past three decades look like a ride on Big Dipper. "In the '70s, people wanted to hedge inflation with anything tangible, so they bought real estate and gold, which went up to $850 an ounce. But starting in the '80s, after the Federal Reserve stopped the expansion of the money supply and a severe recession set in, the price of gold went down. People were selling their jewelry, whatever gold they had, and the price collapsed to around $250 by 2000."

Since then, gold once again has soared, thanks to worldwide financial woes and the gathering threat of inflation. "Gold is a diversifier and an anchor," said Palo Alto financial planner Leslie Beck, who has bought gold for her own IRA. "You buy it because it's a scary time."

Bobby Chopra, a buyer for Cash for Gold San Jose, sees these financial worries in the eyes of the people who walk into his shop. "I'm just a guy people bring gold to," he said. But Chopra's customers bring more than gold. They bring stories.

"People come in here for a million reasons," he said. "Some are short on money, some have lost their jobs, some are trying to get rid of old jewelry they don't want anymore. Or it costs too much to fix. Or they've just gotten divorced and they don't want to look at their husband's ring anymore."

And true to the gold bible, "business has been good because the economy has been bad. When I started here three years ago it was $550. It's crazy. But the more it goes up, the riskier it becomes. It's going to collapse next year as the economy gets better."

But this coveted metal can be fickle. Bella Berlly, a certified financial planner in Los Altos, warns her clients that prices can fall just as quickly as they can climb. "When people are emotionally vulnerable and fear-driven in their investments, buying things like gold can get them in trouble."

Most steer clear, she said, adding that "my clients aren't usually driven by fear that a cataclysmic event will ensue in the United States." Yet others use gold as a security blanket in a worrisome world.

Financial planner Beck knows the wide range of emotions driving her fellow gold investors.

"The only reason I started buying it six years ago was because the prices were just so low," she said. "I only have about 5 percent in my IRA. But in early 2009 when things had really blown up, I heard from really smart high-tech engineers who sold their entire 401(k) accounts, paid the penalty and tax, and then put the money into gold. That's the kind of fear that's out there. I don't want to be involved in something that's that fear-driven, but when a commodity cycle is there, it's crazy to ignore it."

Beck has watched gold prices bounce up and down, and the current growth cycle still has legs, she said. "When we eventually get inflation, maybe in 2012, gold will continue to climb all the way into 2017. And then I'd look to sell."

There are no comments - be the first to comment