Golden opportunities
Precious metals market looks brighter; Dealers, fund managers expect turnaround
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John F. Waldron
After a long period of decline, personal investments in gold, silver, and collectible coins are starting to shine.
Interest in precious metals is on the rise, according to area dealers.
Richard Medina, president of Lone Star Coins and Collectibles Inc., says trading in his store started picking up this spring.
"In the past few weeks, we have seen a sizable increase in business," he explains. "Many investors who are purchasing coins are leery about the stock market and the rumored 2000 computer crisis."
Instead of making impulse purchases, Medina says investors are executing cautious decisions based on research and self-education.
"The typical investor is a professional who has an educated knowledge of coins and wants to transfer money from stocks and other investments to something tangible," he says. "Adults who had penny collections as kids are now returning to coins as a serious investment."
The majority of new investors are those interested in purchasing gold and silver bullion as a hedge against the stock market, according to Medina.
"In terms of traffic, the number of investors interested in gold and silver bullion is increasing more rapidly than collectible coins," he says.
Chapman Stout, president of Medlar's, says the collectible coin market has changed considerably since it's collapse in the late '80s.
"Before the collapse, the general public was buying everything they could get their hands on," he contends. "Today, the typical investor is a connoisseur with a large amount of discretionary income who views collectibles as both a hobby and an investment."
He says that while common collectible coins have been slow to increase in value, rare and fine quality coins are doing extremely well.
"While appreciation across the board has only been about 3 percent, rare and fine quality coins have been appreciating anywhere between 5 and 10 percent," he says. "The investors who are purchasing rare coins right now are going to see some very nice returns long-term."
Soft prices
Jaime Goodwin, owner of San Antonio Jewelry and Rare Coins Inc., says the current gold and silver bullion market makes it an excellent time for the general public to start investing in precious metals.
"Right now, the market is soft and has stabilized without rebounding with any significant increase," he explains. "Realistically, it is always better to purchase precious metals when the prices are soft."
Goodwin expects the majority of investors to be attracted to the prospects of investing in gold and silver bullion over collectible coins.
"Most new investors do not believe they have the experience to deal with collectibles because the prices are more open to speculation," he adds. "They feel more secure purchasing bullion, because the price is tied directly to the market value."
Buyer beware
Investors considering the purchase of collectible coins and bullion should proceed with caution as they contemplate specific purchases.
"New investors should go to dealers and ask a lot of questions," Goodwin says. "Then to get their feet wet they should buy some bullion because of the limited room for error in that market."
The grading of collectible coins (the process by which a coin's value is determined), affords the greatest amount of error, according to Goodwin.
"A dealer could sell an investor a collectible coin that he graded at a certain value, but there is no guarantee that the coin will receive the same grading from a perspective buyer," he explains. "As a seller, I prefer to deal in coins that are certified by independent grading services, because there is less room for disagreement."
Medina says he tries to motivate investors interested in collectibles to search their homes for coins and bring them into a dealer.
"Don't always assume that what you have is worthless," he emphasizes. "Take it to a number of dealers and check the value before selling something that might be worth a great deal."
The biggest problem associated with coin investments, according to Medina, comes when investors purchase a set of coins on an impulse before checking the product out.
"I would be cautious about purchasing coin sets from advertisements in a magazine," he explains. "Do the math and check out local dealers and you might find the same coins for a lower price."
Funds bottom
Brokers working with gold and silver equity funds say the trends that are impacting bullion and collectible coins may also cause the prices for gold and silver equities to rise significantly.
"The markets for gold and silver reached an 18-year low in January of 1998," says Gil Atzmon, portfolio manager with US Global Investors Inc. "This trend cannot last long and a strong possibility exists for the prices to increase in the near future."
Recent events in overseas gold trading and the mining industry also hint at a rebound in the market, he adds.
"The price of gold has risen quite a bit in foreign markets like India and Korea because of the devaluation of their currency," he emphasizes. "In addition, the fact that most mining exploration companies are currently trading at or below their asset value could imply the bottom of the cycle."
While investors should not put all their money into gold and silver funds based on such indicators, Atzmon advises that it might be a good time to place some of their portfolio into such investments.
"Investors need to be selective and seek out companies that have low debt and operating costs with a good growth profile," he says.
Mark Johnson, assistant vice president with USAA Investment Management Company, says the USAA Gold Fund generated a positive cash flow in November, the first time in over two years.
"As far as gold goes, the worst is behind us," Johnson says. "The dollar now looks overvalued and we could see a reversal of the dollar strength that would be good for gold."
He says other factors like the reduced amount of gold being traded in European markets and a slow in the construction of new mines make him optimistic about the future of gold.
"We are seeing increased interest in our gold fund and I am more constructive today about gold than during previous years," Johnson maintains.
John F. Waldron is a San Antonio-based free-lance writer.
c 1998, San Antonio Business Journal
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