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New gold bugs are young and restless

November 17, 2011|By Claudia Assis
  • Gold's decade-long run has tapped a new vein of investors in their 20s and 30s.
Gold's decade-long run has tapped a new vein of investors in their… (Chris Ratcliffe, Bloomberg )

Reporting from San Francisco — The allure of gold is thousands of years old, but nowadays the precious metal has a youthful look.

Gold's spectacular, decade-long run, coupled with the sovereign-debt crisis in Europe, an uncertain outlook for the U.S. dollar and worries of worldwide recession, has tapped a new vein of investors in their 20s and 30s.

The popularity of gold among young investors speaks to the metal's impressive role as a place to store wealth — and says a great deal about a generation that has seen its share of stock market booms and busts, a housing market collapse and, over the last few weeks, government debt of Greece and Italy trading at yields more akin to junk bonds.

Accordingly, many of these gold buyers have little faith in equities and, unlike older investors, are more inclined to consider alternative investments. Others seek tangible, hard assets as a counterweight to stocks, bonds and cash in the aftermath of the 2008 U.S. financial crisis.

"It was only a matter of time," said Divnain Malik, head of retail sales at Gold Bullion International, a seller of physical gold in New York. Although about half of his clients are baby boomers and more established gold investors, the "younger demographic seems to be catching on."

Indeed, the 25-to-35 age bracket is the firm's fastest-growing segment of buyers, he said. Over the last two months, about half of the hundreds of new accounts opened at his firm were from people in their 20s and 30s, he noted, adding that younger investors are increasingly sophisticated, do not want to repeat others' mistakes and are protective of their investments.

For them, Malik said, "it's not about the risk in gold, it's the risk anywhere else."

Gold's strong track record, of course, is clearly a big draw. Gold has enjoyed a string of nominal record highs for the better part of two years, as investors have fretted about currency debasement, potential for inflation and unbridled government spending.

Recently, though, the deepening of the Eurozone crisis has skewed gold's generally inverse relationship with stocks, with gold losing some of its allure as a haven. Some large investors, pressured by steep tumbles in global equity markets, have sought refuge only in cash.

But gold is still comfortably ahead this year. For example, SPDR Gold Shares, an exchange-traded fund that is a proxy for the metal, was up 23% for the year through Nov. 10, according to investment researcher Morningstar Inc.

For U.S. investors, there's a sense with gold of better late than never. Unlike Europeans and Asians, Americans don't have a long tradition of owning gold.

Yet contrary to stereotype, most U.S. gold investors are not guns-and-bunker renegades, hoarding physical gold to fend off the collapse of civilization.

Demographic studies on precious-metals investing done in the 1970s and 1980s showed a large percentage of college-educated buyers, with only a small portion owning gold for "doomsday scenarios," said Jeffrey M. Christian, managing director of CPM Group in New York.

Studies in the 1990s offered similar findings, he added, and also detected rising participation of women in gold investing, consistent with broader trends of women taking the lead in family investing decisions.

These days, young buyers' interest in gold is hampered by the metal's high price, Christian said.

Student loans, the financial pressures of a young family and other obligations leave little money for investing or speculation, he noted. An ounce of gold currently fetches about $1,780.

Yet despite such obstacles, the financial crisis three years ago was severe enough to make the younger generation reevaluate their investments, Christian said.

Kurt Brouwer, chairman of Brouwer & Janachowski, in Tiburon, Calif., added that he has noticed greater interest in gold across all age brackets.

"Any time you have something doing well, people get interested in it," he said.

With clients who are thinking about gold, Brouwer walks through three main avenues of investing, depending on an investor's beliefs.

If you want to speculate, a good alternative is to buy one of the several exchange-traded funds backed by gold. It's easier and more liquid, he said.

Another alternative is the stock of gold mining companies, because shares "have not soared nearly so much as gold" futures, Brouwer said.

For those who believe in gold as an alternative to currencies, bullion coins could be a long-term holding. Brouwer favors coins over gold bars, and bullion coins over numismatic coins, because it's easier to determine the value of bullion.

For Rich Wilson, 32, an account manager at an energy firm in Louisville, Ky., gold is about confidence.

His first stock investment was in a mining company; an uncle bought the shares for him when he was born, he said. After college, Wilson become more involved with gold. He and his wife wanted something that would not lose value or evaporate in an instant.

"We want to make sure we have assets to leave behind," Wilson said. "With one son and another on the way, we want to be able to help them out in later stages in their lives."

So Wilson has bought physical gold. "I am not expecting a return necessarily," he said, "but preservation of wealth."

Assis writes for MarketWatch.com/McClatchy.

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