Spurred by renewed inflation fears and sharp gains in gold prices, investors are snapping up gold coins, bullion and jewelry in the first such buying binge in five years.
Some Southern California gold bullion and coin retailers report that year-to-date sales are running 25% to 40% ahead of last year's pace, a welcome reversal for them after several lean years.
Buying at coin and bullion shops has been especially heavy this week after the government issued worrisome reports that inflation might be rising, dealers say. News that consumer and wholesale prices shot up 0.4% and 0.6%, respectively, in April caused investors to bid up gold and silver prices as a safe haven against inflation.
Gold gained $7.50 to close at $368.70 an ounce Thursday--a 15-month high--after bumping up $4.50 on Wednesday, while gold mining stocks and gold mutual funds also continued their upward trend.
"Definitely the volatility over the last couple of days has increased the volume of business," said George Hall, executive director of Monex Deposit Co. in Newport Beach, one of the nation's largest gold dealers.
However, some observers advise small investors to be cautious, saying the latest gold rush could soon become a bust.
They warn that the gold market now is highly volatile and that there is no guarantee prices will continue higher. Gold has made other "false moves" in past years before settling back down, they note, and the easy profit this time may already have been made--gold is up about $42 an ounce since early March.
Nonetheless, investors who are returning to gold say they have dire expectations for the future and fear that high inflation and a stock market collapse could be just around the corner. For them, gold is a bulwark against uncertainty.
"I don't expect to make a profit, I'm just trying to protect what I have," said a gold buyer from Woodland Hills who would identify himself only as Ed.
"We're seeing some fundamental confusion . . . as to where money should go," said Bruce Kaplan of Kaplan & Co., a Santa Monica-based precious metals consulting firm. "And when people are frightened or confused, they have always turned to gold. That was true 2,000 years ago, and it's true today."
For an investor named Roy, who has been buying coins off and on for years, gold's attraction has been enhanced by the lackluster returns available on other investments.
"Low interest rates (available on Treasury bills and other monetary investments) mean you're not giving up anything to buy gold," said Roy, who refused to give his last name. "It's a very cheap form of insurance" against inflation.
Such interest is a much needed shot in the arm for Southland gold dealers. Investor disenchantment with gold over the last decade caused purchases to drop to such low levels that many shop owners went out of business, Kaplan said.
Joe Battaglia, chairman of Gold & Silver Emporium in Encino, complained that until the last few months, "there hasn't been any volume." Since gold prices and sales hit a peak in January, 1980, dealers have witnessed "a gradual process of liquidation. . . . The market (has) eroded over the last seven years."
But now, amid heavy demand and rising prices, the U.S. Mint's West Point, N.Y., facility has stepped up production of American Eagle gold coins. Sales of the coins this year are running 82% ahead of last year's pace, based on ounces sold, a mint official said. Total coins sold last month were the highest of any April in five years.
Jewelers are also buying more gold to meet increased demand. The World Gold Council, a New York-based trade group representing gold mining firms, said shipments of gold to U.S. jewelers for manufacturing reached an estimated 50 tons over the first three months of 1993, 4% more than during the same quarter last year.
The hottest-selling coin, dealers say, is the American Eagle, available only since 1986 when the federal government outlawed sales of new South African Krugerrands.
Gold investors hope that prices will continue their rise after trading between $325 and $375 an ounce since 1989, Battaglia said.
But some analysts say the market may top out soon. Howard Ruff, an investment adviser, editor of the Springville, Utah-based Ruff Times and one of the 1980s' best-known gold "bugs," said any dramatic increase in gold prices is unlikely until inflation grows.
"Classic gold bull markets of the 1970s were fueled by people worried about the collapse of the purchasing power of their money," Ruff said. "That sort of inflation isn't happening yet."
Ruff also advised "casual investors" to be clear about their investment objectives. Some, such as the gold bugs, buy gold with no short-term expectation that they will make a big profit. Instead, they buy because they "think that gold will be all that will be left to civilization and see it as a haven for safety."