From Their Television Broadcasts May 6-7, 2002
There is a new gold rush in America and your neighbors are joining
in. No, they are not buying pans or picks and shovels. Instead,
they are reaching for their checkbooks. They are buying gold. And
it's happening around the world.
Goldline.com, which is a gold seller in Santa Monica, California,
says in the last year demand for gold purchases has climbed by 50-percent
in Japan and 10-percent worldwide.
Gold prices are going up for what you might say are all the "wrong"
reasons. "People are worried," Robert Fazio of Goldline.com
told me. "The stock market is taking a beating lately, we have
this Enron story, people don't know who to trust."
When people don't know who to trust, history tells us that they
buy the thing they can trust-- gold they can hold in their hands.
The price of gold has climbed about 15-percent so far this year,
says Fazio. Compare that to the value of your stocks.
Gold is now priced around $310 an ounce.
There are more reasons contributing to the rise in gold prices:
there is fear of higher inflation and fear of higher interest rates.
"It could be telling us that inflation is right around the
corner," says Fazio, "and we could be seeing the end of
these low interest rates."
The Federal Reserve has indicated that higher interest rates are
coming though analysts say a rise in rates is not imminent.
If you are interested in investing in gold keep in mind that there
are various methods.
You can invest in gold mining stocks. But stocks have variables
besides the price of gold including how well a company operates,
labor costs, cave-ins, financing costs and utility costs are just
a few of these variables.
If you are buying gold consider holding the actual metal, but here
again there are variables.
If you buy gold bars -- even small bars -- remember that you might
face "assay costs" or charges to prove the purity of the
gold you buy. You can avoid assay costs by buying government made
coins and medallions.
Even with government coins, values will vary based on numismatic
value (coin collector value) and public acceptance.
Several governments mint gold bullion coins which are designed
to be priced based on their content of gold. Generally, these coins
have one ounce of gold, though there are coins made with one-half
ounce and one-quarter ounce.
A South African one-ounce Krugerrand is generally priced at $6.00
above the price of the gold. A United States American Eagle one-ounce
gold coin has a premium of $8.00 above the gold content, generally.
The Canadian Maple Leaf gold coin, perhaps the most popular gold
coin in the world. has a premium of $10.00 above its gold content.
Premiums will vary for smaller gold coins. Basically, the smaller
the gold coin, the higher the premium on a percentage basis. The
premium on a one-tenth ounce gold coin is very expensive because
you are paying for the cost of manufacturing and marketing.
Numismatic gold coins can have very high premiums. A $20 U. S.
gold piece made in 1908, for example, can be priced $150 above the
value of the one-ounce of gold in the coin. In this case you are
paying for the "collector value" of a 1908 gold coin.
Other methods of investing in gold include buying gold futures
contracts and gold options on commodity exchanges. Remember that
these "contracts" may have variables including a time
deadline at which time the value of your contract can fall to zero.
Gold can also be owned in pooled accounts; you get a certificate
saying you own a share of a supply of gold. In this case, you want
to be sure that the investment company holding your gold is honest.
Some consumers might think that buying gold jewelry is a good investment.
Yes, gold prices do affect gold jewelry prices. But in the case
of jewelry, you are primarily paying for the art and craftsmanship
of the gold jewelry; you are also paying for the cost of mall stores
and retailing and advertising costs and not the value of the metal.
In reality, there is very little gold in a gold ring or chain.
Want proof of this? Take a gold chain or ring to a pawn shop and
see how much money you can get for your gold jewelry? I did this
with a gold band that cost about $200 in a store; the pawn shop
offered $20 -- or ten cents on the dollar for the "metal."
Goldline.com offers a free booklet from the World Gold Council
that will answer many questions about investing and owning gold.
To get your free copy call 1-800-827-4653.
That's Your Money.
Alan Mendelson, KCAL 9 News
