Financial and political instability in the U.S. have driven more people to invest in gold, but many local financial advisers are not encouraging clients to rush into the precious metal.
Gold prices were up $53.80 to $1,718.20 per ounce on Monday, as the stock market dropped, the U.S. dollar remained weak and distrust in the U.S. government continued.
Just 30 days ago the price of gold was about $1,555, according to Kitco, a precious metals retailer. Ten years ago the price was about $300 an ounce.
“People all over the world are buying it,” said David Marcum owner of Probate & Estate Buyers, LLC based in Naples. “Last night in Hong Kong people started pulling their money out of stocks and putting it into gold, the safe haven.”
Marcum said some people called him up on Monday to invest in gold because they believed the price would continue to rise. However, more people called him to sell gold or at least get price quotes, he said.
At Gold Store Plus Moore in Naples, a woman sold three gold coins on Monday. Although gold prices could go higher, she said they were up now and she was ready to sell.
Owner Gary Moore used $1,700 as the base price and offered her $1,650 for each coin. That is roughly $145 more than she would have received a month ago, when the price per ounce of gold was $1,555.
People often purchase gold because it is inherently viewed as safe and accepted by all countries. However, financial advisers tend to advise their clients to make gold a small percentage of their investment portfolio if they recommend it at all.
Common investment strategy also encourages the client to, “buy low and sell high.”
Gold can be invested in many ways. People buy gold coins and bullion bars from local sellers or purchase futures contracts on the commodities market. They also might buy gold through stocks, mutual funds and exchange-traded funds, in which the gold is held by a holding company.
Charley Corbett, a financial consultant for Charles Schwab in Naples, said gold comes up often in conversation, and he tries to keep clients’ gold investments at small percentages — no greater than 2 percent of their entire portfolio, for example, he said.
“I would never say invest 100 percent in cash or gold,” Corbett said.
Most of Corbett’s clients are around 80 years old, so they are looking for income. Gold doesn’t produce income or dividends, he said. People invest in gold because of a perceived safety, but gold isn’t less risky than the stock market, he said.
Besides not paying dividends, gold doesn’t have much industrial use and there isn’t a business sheet or financial statement for the investor to analyze, Corbett said.
Terry Rand, president of Rand Financial Advisors LLC in Naples, has been a financial advisor for 53 years. It is advertising that has encouraged people to buy gold, he said.
If someone came to him concerned about the market, he would advise they wait out market instability in cash not gold, he said. Cash has liquidity, which is important for people of retirement age.
“I wouldn’t take a lot of money out of the bank and buy gold,” Rand said. “All those things are bubbles that are likely to burst eventually and could go down 30 or 40 percent.”
Rand also disagrees with the Standard & Poor’s credit downgrade. He believes the United States’ track record of inventing new technologies that keep the economy moving forward should be taken into account.
That track record doesn’t seem to be what many Americans and people around the world are looking at.
“People don’t have faith in the government,” said Mary Ellen McMahon manager of Gold Store Plus Moore.
With the enormous U.S. debt, people are taking money out of 401(k)s and mutual funds and investing in gold, she said.
While Marcum, Corbett and Rand might not agree on the importance of having gold in a portfolio they do agree that diversifying is important.
“Don’t just put it all in one basket,” Corbett said, “whether it is a good or bad investment.”