Nov 15, 2007

Gold Bugs Riding Wave of Rising Prices

Gold Bugs Riding Wave of Rising Prices

By David Nicklaus
St. Louis Post-Dispatch
Wednesday, November 14, 2007



For the last 25 years, people who wanted to own gold have had a slightly kooky reputation. Mostly older males. Survivalists, maybe. Pessimists, certainly.

Now, with gold at $800 an ounce for the first time since 1980, Dennis McCormick is providing a primer on precious metals to a lot of people who don't fit the stereotype. Men and women, young and old, are coming into his Missouri Coin store in Des Peres. They've never owned bullion before, or gold or silver coins, but they want some now.

They're not doom-and-gloomers who want to convert all their savings into gold, McCormick says, but they see the metal as an important diversification tool, a hedge of sorts. After all, they saw credit markets seize up this summer, and they've been watching the dollar decline.

Last month Missouri Coin sold seven times as much gold and silver as it did a few months earlier. And interest is continuing to build.

"A week ago was the first time I saw fear in their eyes," McCormick said. "They were fearful of the dollar's collapse. ... They wanted to diversify their portfolio and have something in hard assets."

The gold buyers coming into McCormick's store are part of a global parade that's rapidly turning into a stampede. The spot price of gold has risen nearly $100 in the last two months and $300 in the last two years.

That puts it within hailing distance of $850 an ounce, the record price reached in January 1980.

Gold traditionally is a safe haven in times of conflict, and the bull market in precious metals started almost simultaneously with the Iraq war in 2003. It's also a hedge against inflation, which erodes the value of paper assets, and inflation fears seem to be driving the recent rise.

Wistar Holt, a partner at Holt & Shapard Capital Management in St. Louis, has had most of his clients' money in gold-mining stocks since 2001. When he last calculated his returns in June of this year, his portfolio had gained an average of 27 percent annually, net of fees.

Holt believes that the dollar will continue to weaken -- and gold to strengthen -- while the Federal Reserve tries to prevent a recession. The Fed has lowered interest rates twice since September, making dollar-denominated bonds less attractive to foreign investors. Many of those foreigners -- including the Chinese, South Koreans and Russians, Holt says -- are buying significant amounts of gold.

For the average American, investing in gold is easier than ever. If you don't want to go to the trouble of buying physical gold, or understanding the finances of mining companies, you can buy an exchange-traded fund that tracks the metal.

Still, many Americans scoff at the shiny stuff. "I think the U.S. investment community is basically still out of this rally," Holt said. "Before we see the peak, U.S. investors will be very much in it the way they were back in 1980. And when U.S. investors get involved, the returns could be enormous."

Adjusted for inflation, the peak 1980 price amounts to more than $2,400 today. Holt thinks gold could challenge that record, and he says it will easily surpass $1,000 in coming months.

How will he know when to take his winning bet off the table?

Only when Wall Street firms start touting gold like they push technology stocks, Holt says, will his favorite investment be in danger of losing its shine.

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