CASH IN A MATTRESS? NO, GOLD IN THE CLOSET.

Cash In A Mattress? No, Gold In The Closet.

Newsweek
by: Lisa Miller with Jessica Ramierz
Mar. 7, 2009
(From the magazine issue dated Mar 16, 2009)

A hundred-ounce gold bar, when you hold it in your hand, is surprisingly small and even more surprisingly heavy. It's somewhat longer and fatter than a Hershey bar, but it weighs six-plus pounds-as much as your old calculus textbook. Its color is unforgettable. Pure gold is gold. It's not like your wedding ring or your grandmother's bracelet. It's a deep, dense yellow, the way the ocean is deep blue, and it sparkles. You can understand at last why the Bible says the streets of heaven are paved with it.

On the day I held the gold bar in my hand, it was worth nearly $100,000. My companion-an established, accomplished, affluent businessman of retirement age-had bought it as a hedge against the sinking Dow and his fear that Obama's stimulus package will inevitably trigger wild inflation. We had picked it up in the basement of an HSBC bank branch in midtown Manhattan. When I handed it back to him, he put it in his briefcase. We went upstairs, past guards, through metal doors. Out on the street, we said goodbye and I watched him go, a tall, thin man carrying a $100,000 briefcase. He doesn't want me to tell you his name-or, really, anything about him-because he's keeping the gold in a safe in his basement. His friends, he says, are doing the same thing. "There is an increase in the number of wise, reasonable, well-read, well-intentioned people who are buying some gold and putting it aside," says Dennis Gartman, editor of The Gartman Letter, a daily analysis of financial news.

John Wynocker, a hydraulics inspector, lives in Cincinnati and has been buying gold and silver coins and bars for 15 years, but since the passage of Obama's stimulus bill, he has been motivated to buy more. He is hiding the precious metal in places where not even he can find it, he jokes. Are you burying it? I ask. "Perhaps," he says. "Our country is so far in debt, it's staggering. I'd like to retire someday. What else am I going to do to protect myself?"

Here is Wynocker, a working man, trying to get a grip on his own financial future with a shovel. The price of gold is near an alltime high-it topped $1,000 an ounce on March 13 -- yet the number of Americans who are taking delivery of gold coins and bars is rising. According to the World Gold Council, Americans bought 600 tons of gold bars and coins in 2008, a 42 percent increase over 2007. That's not as much as in Europe, where gold mania has become epidemic -- but significant given the metal's high price. An uptick in the U.S. economy, and buyers are likely to find they've been part of a giant, golden bubble.

There are, traditionally, two kinds of gold investors: speculators and hoarders. The first group trades on the futures market, which establishes the price of gold. The money they make--or lose-- usually has nothing to do with taking possession of gold: like most modern-day investments, their gold acquisitions are blips on a computer screen. Hoarders are different. They buy gold, the real stuff, and save it for a rainy day. Hoarders have always existed, but their numbers increase during financial crises. To generate liquidity during the Depression, President Franklin Roosevelt outlawed hoarding in 1933. He demanded that everyone who owned gold coins (except collectibles) or bars turn them in and receive $20-plus an ounce in exchange. That law was rescinded in 1975, and since then retailers that sell actual, physical gold to individuals have jumped in.

In times of stress, gold's unique properties and its long history as a valuable asset make it an appealing buy. Gold is gold, its boosters say. Its monetary value may rise and fall, but its intrinsic value remains constant. Gold-industry people like to give this illustration: in the Middle Ages, a one-ounce gold piece bought a full suit of men's clothes. Today, a one-ounce gold piece -- about $950 -- buys a full suit of men's clothes. The ballast it provides, then, is both psychological and financial. "It looks like the sun and reflects terrifically," says Robert Hoge, a curator at the American Numismatic Society.

At least since the sixth century B.C., when King Croesus of Lydia (of "richer than Croesus" fame) decided to melt gold lumps into standard shapes and weights, gold money has been spent, traded, hoarded -- and valued above all other coins. For much of modern history, government currencies were backed by gold, an economic practice (known as the "gold standard") meant to limit inflation. But there's a rational aspect to buying gold now. Historically, the price of gold has been inversely correlated to fluctuations in the dollar; that's why it is seen as the ultimate inflation hedge.

In North America, where democratic governments and financial markets generally function, the idea that a person might have to flee with hard assets is still considered somewhat freakish. But to refugees of real cataclysms, whether the Holocaust or the civil war in Rwanda, owning hard assets to trade or barter is not only sensible, it can save your life.

Geoff Farnham is clear-eyed about his investment in gold. It's a hedge, not a love affair. A retired software engineer from California, he started collecting gold when he inherited some rare coins from an uncle, but over the past year he's bought a lot more. He now has 15 percent of his portfolio in gold coins, he says, which he keeps in a safe-deposit box. … "There is a survivalist element to buying gold. Period. I think that's why my uncle had the gold in the first place. I would hate to see the day when you need it."

There's the rub. In the event of global collapse and inflation, in a world in which paper currency is worthless, what good will gold actually do? How do you take your gold bar to the 7-Eleven and buy a gallon of milk? Mark Albarian, chief executive of Santa Monica, Calif.–based Goldline, says that when dollars are worthless, a gold bar will buy a whole lot of dollars, which you can then use to go buy milk. "We buy gold in case the unimaginable happens," he says.

The above information has been redacted from the article as it originally appeared in Newsweek.

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