Always appreciate your thoughts..................
Does it belong in your portfolio?
<Picture: Related material:>
------------------------------------------------------------------------
<Picture: *>MONEY & BUSINESS: More business news
------------------------------------------------------------------------
By Bob Fernandez
INQUIRER STAFF WRITER
The global stock meltdown over the last year and the threat of the year-2000 computer bug, which some fear could disrupt the financial system after Dec. 31, 1999, have ignited sharp interest among private investors in precious-metal coins.
This is happening despite slumping prices for gold, silver and platinum, attributable in part to a slowing world economy that is limiting industrial use of the metals, and reduced demand from jewelry manufacturers in Asia because of the region's financial crisis.
One exception: a rare metal called palladium. Palladium prices have soared because of financial and political crises in Russia, a major producer.
Some financial experts say precious metals have a place in an investor's portfolio, though not a large one -- about 5 percent of the portfolio's value -- because they can provide a hedge against the stock market. When stocks decline, precious metals many times hold their value, or rise.
But other experts warn that precious metals, even in times of deep global distress, are nothing more than industrial commodities whose values rise and fall with world industrial output, jewelry industry demands, and supplies of the metal from mines or stockpiles.
Gold has been divorced from an official role in the world's financial system since the early 1970s. This decade, some nations' central banks have sold reserves of gold, further depressing the price.
"At the end of the day, gold is no better than soybeans or copper," said Fred Bogart, managing director of the precious metals department at Republic National Bank of New York. But, he said, "It makes people feel good to own gold. It's a feel-good commodity.
"But you don't buy it for an investment," he said. "You buy it because you think it's going to hit a certain price in a certain time period. If you're wrong, don't forget to sell."
Precious metals, unlike many stocks and most bonds, don't pay dividends, and their value fluctuates only with world markets' spot prices -- which are determined by perceived supply and demand. "Those who hold and hold [ precious metals ] eventually lose," Bogart said.
But for now, the story driving the demand for precious-metal coins appears to be the psychological haven of a hard asset in uncertain times.
The U.S. Mint, which produces gold, silver and platinum coins, reports that sales of its American Eagle gold coins this year will be more than double last year's volume. In fact, American Eagle gold coin sales last month and in August were greater than they were in some entire years in the past, the U.S. Mint said.
The Eagle is sold in several sizes: one ounce, one-half ounce, one-quarter ounce and one-tenth ounce. The Mint sells the coins to seven authorized purchasers -- major banks, such as Republic National of New York, and other financial institutions -- who then sell them to dealers and retailers. August's sales of 255,000 ounces, in all sizes of coins, exceeded 1991 sales of 253,000 ounces. Last month's sales of 288,500 were higher than the 275,000 ounces sold in 1996.
U.S. Mint officials do not comment on why the gold-coin sales have surged. But coin dealers and precious-metals traders say survivalists and others who fear that the United States or the world could be on the brink of financial turmoil have been buying both bullion silver and gold coins. Though spot prices for the metals have not responded to the demand, premiums for many of these coins at retail stores are increasing, they say.
The global stock market meltdown has concerned people, the dealers and traders say. But a bigger worry is the computer bug -- called the Y2K -- that is expected to cause havoc in many computer systems on Jan. 1, 2000. This bug could lead some mainframe and personal computers to treat the date as January 1900, provoking computer malfunctions that many people believe could result in power failures, bank-computer crashes, and government shutdowns.
People who are buying precious-metal coins believe that if banks crash because of the computer bug, the nation's economic system could collapse and paper money would become worthless. In that scenario, they could use their gold coins to purchase the goods they need to survive.
"These guys figure that when the year 2000 rolls around, you could have a disruption in the world, you could have cities without electricity, you could have banks that can't function," said Albert Landes, 69, owner of JSM Coins and Precious Metals in Northeast Philadelphia. "It doesn't sound too far-fetched to me."
This fear is showing up in retail prices. For example, an old $20 gold piece -- which at today's prices contains about $285 in raw gold -- is selling for about $450 a coin, a substantial premium to its intrinsic value, Landes said. Supply, he and other retailers say, is tight.
In general, people who want to buy non-collectible precious-metal bullion coins -- such as the American Eagle or Canadian Maple Leaf gold coins -- should find them at dealers for about 5 percent over the spot price of the metal quoted in newspapers, Landes and other dealers say. Commissions and taxes, depending on where the coins are bought, may be tacked on to the price. People buying a high volume of bullion coins can negotiate lower premiums, Landes said.
Sid Reichenberger, a precious-metals trader with Dillon Gage Inc. in Dallas, said investors are seeking safety in precious metals and are attracted by their prices, which are low when compared with 1980s levels. Gold is selling for $290 to $295 an ounce; silver for about $5 an ounce.
"Some people are of the mind that it will be the end of the world, and there are some people who are of a mind that it will be a little inconvenient," Reichenberger said. "In either case, they are trying to protect themselves."
The defining moment in recent history for gold and silver prices came in the late 1970s and early 1980s, when global political and financial turmoil -- including an oil-price spike and the Iran hostage crisis -- led to the hoarding of precious metals. This drove up prices. Since then, gold, silver and platinum prices have come down -- only to rise again in periods of financial uncertainty.
Mike Clark, a co-managing director of FideliTrade Inc., a precious metals trading and storing house in Wilmington, said economists and central bankers play down the importance of gold and other precious metals. But, he said, most people trust that precious metals will hold their value through rough times.
"There is a new school of thought that gold is nothing but an industrial commodity and not a monetary asset," Clark said. "But I can assure you that when the paper currency comes into doubt, people move their money out of that currency and into a more stable investment. . . . Gold always has been, is and always will be money. And it will be money of last resort."
FideliTrade was spun off from Wilmington Trust's precious metals division this year. The Wilmington bank had decided that precious metals were not part of its long-term plan. FideliTrade trades, sells, stores and ships precious metals for thousands of customers.
In the company's basement in a nondescript North Wilmington building, FideliTrade stores tens of millions of dollars worth of gold, silver and platinum. Eerily quiet, the basement is a surreal, heavily guarded place with bricks of gold and silver stacked on pallets, bags of silver coins, and neatly stored coinage of assorted sizes and type.
Eagle gold coins are popular among FideliTrade customers, because they have the backing of the U.S. government. The Canadian Maple Leaf and the South African Krueggerand coins sell well, too, said Jonathan E. Potts, a FideliTrade co-managing director. He said business has been picking up.
"A lot of people, regular folks, don't know what will happen," Potts said. "They don't think the world is coming to an end but they don't know what will happen."
phillynews.com |
