|By Hannah Cushman, St. Louis Post-Dispatch|
Heads up, investors — we're not in 2011 anymore.
Gold prices have fallen nearly 20 percent this year, to
As the precious-metal market turns from bull to bear, the big question remains: Will this trend persist?
There is no definitive answer. What is certain is that gold has always had some intrinsic value. That's why its most conventional use is as a hedge against inflation.
"That's what 90 percent of our customers are buying precious metals for, is to protect their cash," said Scotsman Coin and Jewelry salesman
By that logic, it makes sense that gold began its three-year run up the price charts in 2009, as the recession deepened and just after the Federal Reserve began pouring cash into the economy via quantitative easing.
Three rounds of cash injections later, however, not much has come of the inflationary fears that drove investors to gold in the first place. So when Fed Chairman
While that spells trouble for those already invested, new investors have the opportunity to capitalize .
"It's a buyer's market," Mamelian said, estimating that lately sellers have accounted for one in every 100 transactions at his store.
There are several options to gain exposure to gold, each with its own pitfalls and benefits.
Physical gold, for instance, is less volatile in price than the indexes that track it.
"In my opinion, that's the only way to buy gold is to take physical delivery, that way you know you have it," Mamelian said.
On the downside, short of burying it in the backyard, gold requires further investment to store and insure. Shearburn recommends a safe deposit box; the cost will vary depending on how much needs to be stored.
There's no immediate return on gold, either. In the recent past, low interest rates have kept the opportunity cost of investing in precious metals close to zero. That is to say, investors weren't missing out on much by holding gold instead of an asset that accrues interest.
Rates, however, are beginning to rise.
For the short-term investor, an exchange-traded fund, such as SPDR Gold Shares (GLD), offers some attractive features, not least of which is relative liquidity. Essentially a basket of various securities, ETFs give investors exposure to a sector while protecting against the rise and fall of individual assets. They're bought and sold like shares of stock.
But insulation from the market comes at a premium. Units of an ETF are not wholly backed by gold, with critics estimating that some bullion banks own only 1 percent of the metal they've contracted to investors.
"Most mining companies cannot make money at this price per ounce (of gold)," Holt said. "The sector has been absolutely annihilated."
For his part, Holt predicts the layoffs and project cuts in the mining industry will contribute to the eventual stabilization of the gold market. As supply drops, he said, higher demand will prop up price.
That's already begun in
Although import penalties will likely curb demand in
"Physical demand will ultimately determine the price of the metal," Holt said.
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|Source:||McClatchy-Tribune Information Services|