How GOLD Is the Perfect Insurance from Stormy Stockmarkets

IN TIMES of economic uncertainty, investors have always turned to gold.

It is renowned as a storer of value, the one asset that will consistently ride out soaring prices and volatile stockmarkets. Unlike almost any other commodity, its price isn't affected by inflation and is not linked to shares.

And if fears over the Chinese economy, a drop in growth of the emerging economies, or prolonged periods of low rates in the U.S. are realised, it could soon be the asset of choice for investors again.

If you own it already -- whether through a fund or because you've bought jewellery or a gold bar as an investment -- then you're holding an asset that should ride out the good times and the bad.

Currently, though, with the economies of many countries performing well and fears of deflation in the UK, savers have been put off it.

In the midst of the financial crisis in 2011, the price of gold soared to a record high, eventually hitting more than $1,900 an ounce. Today, it stands at around $1,176.

That drop has pummelled gold funds, which are down as much as 70 pc over the past three years.

However, when you invest in gold you need to remember that it isn't about growing your money -- it's about protecting it. It works as aabout protecting it. It works as a kind of insurance and, as with any insurance, there is a cost to owning it: gold doesn't pay interest or a dividend, and the money you hold in it is missing out on returns you could get elsewhere.

Figures from BullionVault show that a saver with 10pc of their cash in gold and the rest split between equities and bonds will miss out on the big peaks in the market when times are good. Their average annual return from 1975 to 2014 would be 13.7pc.

For a saver with no gold, that rises to a slightly higher 14.2 pc.

But the investor with the gold would fare better in bad years. In the worst year over that period, they would lose 7.6pc of their money, whereas the investor with no gold would be down 13.2 pc.

The dilemma is whether it is worth missing out in the good years to have the reassurance that you'll limit how much you lose in a bad year.

Laith Khalaf, senior investment analyst at Hargreaves Lansdown, says: 'The events which drive demand for gold are by their nature unpredictable, but it is difficult to see a recurrence of the perfect storm of low interest rates, currency debasement and turmoil in stock markets which propelled it to its 2011 high.' The prospects for gold largely hinge on what the U.S. Federal Reserve does next -- if interest rates go up, it's likely the price of the metal will come down.

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GOLD FEVER ; Going for the Gold a Labor of Love for W.Va. Prospectors

HILLSVILLE, Va. - In a state far better known for coal mining than gold mining, more than 1,000 West Virginians still feel the urge to try their hand at finding the elusive yellow metal in the bottoms of their gold pans.

Two years ago, West Virginia lacked a single chapter of the Gold Prospectors Association of America, the nation's largest recreational gold-seeking organization. Today, there are four West Virginia GPAA chapters, with a total of at least 1,040 members statewide.

"I think the television shows had a lot to do with it," said Dave Kessler, president of the Nitro chapter of the GPAA, referring to a recent bumper crop of "reality" prospecting shows on basic cable, including the Discovery Channel's "Gold Rush Alaska" and "Jungle Gold," the History Channel's "Bamazon," the Animal Planet's "Ice Cold Gold," and the Outdoor Channel's "Gold Fever."

The price of gold, which peaked at $1,920 an ounce in 2011 and remains above $1,300, may also have been a factor, Kessler said.

"Once people get out and give it a try, they realize how fun it can be," Kessler said. "It's a great way to get outside and have fun digging in the creek with your kids. If you find a little gold, that's icing on the cake."

On a recent Saturday, members of the Nitro and newly formed Smithville, Ritchie County, chapters of the GPAA took part in a prospecting outing hosted by the Hillsville/Southwest Virginia chapter on private land bisected by a small creek in Patrick County, Va.

The event took place about 170 miles south of Charleston, making it a slightly shorter drive than is needed to reach two of the GPAA's three nearest leased prospecting properties, all located along rivers in Ohio. The nearest GPAA property encompasses a stretch of the Scioto River just north of Portsmouth, Ohio, about 100 miles northwest of Charleston.

At the Ohio GPAA sites, prospectors pan, sluice and dredge for small quantities of fine flour gold, believed to have been carried into the Buckeye State from igneous rocks shoved southward from Canada during periods of Ice Age glaciation. At the Virginia site, the GPAA prospectors were looking for deposits of stream-borne, or "placer" gold washed into the creek from native gold deposits.

"There's gold here - you've just got to look for it," said Hillsville/ Southwest Virginia Chapter President Bill Humble, as he watched 20 or so recreational prospectors operate pans, sluice boxes and power sluices in their search for gold.

Sluice boxes are rectangular, open-topped devices, usually three to four feet long that use stream current to wash gravel through a series of gold-trapping riffles and plastic ribs. Power sluices, or high-bankers, use a small motor to pump a larger volume of water through a sluice, increasing the amount of material that can be processed and the amount of gold that can be trapped.

On larger streams, like the rivers that flow through the Ohio GPAA "claims,' some prospectors use suction dredges, or power sluices mounted on floats that use vacuum-like hoses operated by prospectors to bring river gravel to the sluice intake. Larger and lighter rocks return immediately to the river, while heavier iron sands, stray fishing sinkers and shotgun pellets and occasional pieces of gold remain trapped in the sluice's riffles and ribs until they can be panned out.

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Gold Funds Dulled by August Drop 1993, Bloomberg Business News

After five months of brilliance, gold mutual funds are losing their luster. Values are declining. Redemptions are rising.

This is major news in the investment business, which has always been perplexed by gold. The most precious of metals dropped to $366.30 an ounce Thursday on the Commodity Exchange in New York, a noteworthy decline considering that gold stood at its 52-week high of $411.30 as recently as July 30.

What had driven up gold's price were the fears - or hopes, on the part of gold mavens - that inflation was on the march once again. But that five-month buildup appears to have fizzled.

Now, though gold's price makes it tantalizing once again, gold bugs must decide whether they should prospect for gold mines or sidestep land mines. The provocative issue has fund managers split in a lively "point-counterpoint" debate.

"The demand for gold dropped in August, primarily in the Middle East and the Far East," said Ted Arnold, an industry analyst with Merrill Lynch & Co. "I wouldn't recommend buying shares of gold mutual funds right now."

On the contrary, said Malcolm MacNaught of Fidelity Investments. He manages $759 million in a gold fund and a precious-metals fund. "Twelve months from now, gold will be over $400 an ounce because of increasing demand from the jewelry trade and a drop in supply in South Africa," MacNaught said.

Gold's rise to its $411.30 high on July 30 - a 24 percent increase over March's low of $332.50 - was especially significant because gold hadn't broken through the $400 threshold in three years.

The surge was a bonanza to gold funds, which wooed plenty of small investors. The Investment Company Institute, the fund industry's largest trade group, said $1.5 billion had flowed into precious metals funds, which are dominated by gold. That's more than three times the $488 million that had been amassed in the comparable seven-month 1992 period.

But gold started to weaken, shedding a few dollars.

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Gold Buyers, Sellers Wait for Luster to Return

MINNEAPOLIS - For Disa Kullman and millions of gold buyers and sellers like her, the party is over.

In 2009, Kullman hosted a gold party where she and 15 of her friends sold their outdated and broken herringbone necklaces, bracelets and rings for more than $1,500 in cash. "I never did it again," she said.

Back then, when gold prices started rising after the collapse of stocks, credit and many currencies, parties sponsored by companies such as GoldSwap were common. Gold buyers who set up shop in malls and jewelry stores advertised "we buy gold" incessantly. For middle class consumers, selling became a source of "found money."

Today, as the price of gold has dropped from peaks that followed, the parties have evaporated, most gold-buying stores and kiosks have closed, and the ubiquitous TV commercials by the tan, smiling Gold Guys are history. How did gold lose its luster?

In late August 2011, gold hit an all-time high of more than $1,900 per ounce in after-hours trading, before falling to $1,600 in 2012, $1,200 in 2013, and drifting along at around $1,100 since 2014. As gold prices declined each year, so did consumer interest in selling gold for scrap.

"It was just crazy in the heyday - 2010 to 2012 was off the charts," said Joe Beasy, co-owner of seven Gold Guys stores in Minnesota and California. "We were spending $190,000 a month on nationwide advertising."

The Gold Guys closed three of five stores in California, as well as others in Cincinnati, Dallas, Hawaii and Las Vegas, which Beasy attributes to poor locations. "Our revenue is down 70 percent," he said. "But we're still profitable. If you trade gold in the aftermarket and pay attention to the peaks and valleys, you can make a profit on the back side."

Up to 80 percent of stores that specialized in gold buying nationally are gone, Beasy estimates, as well as many of the websites where people could mail in their gold pieces.

Business at Independent Precious Metals in suburban Minneapolis today is about one-fifth of what it was at the peak, says owner Doug Rooney. "The amount that the scrap market has fallen is staggering," Rooney said.

Besides the loss of interest due to lower gold prices, some say the drop-off is because many consumers don't have anything left to sell.

"Six years ago, I got rid of tons of old pieces that I wasn't wearing," said Bonnie Johnson. "The jewelry I still have I don't want to part with."

Gold pieces sold in the last eight years were often 20 to 40 years old, bought when gold cost less than $400 an ounce.

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Gold Expected to Sparkle with Forecast to Set New High over Next Two Years

MONTREAL - Gold is expected by many to continue to sparkle as an investment opportunity over the next two years despite a 12-year bull run that briefly took the precious metal as high as US$1,900 an ounce before pulling back.

Investment strategist Gavin Graham says gold should rise from its current price of US$1,689 an ounce to approach the 2011 high price later this year before perhaps hitting US$2,000 in 2014.

"I know a number of people have got US$2,000 an ounce pencilled in at some stage over the next 18 months to two years and that's not an unreasonable forecast," the president of Graham Investment Strategy Ltd. said.

Gold saw its smallest price increase since 2008 last year and, adjusting for inflation, it remains below the real all-time peak of US$850 per ounce set in 1980. That's equivalent to a nominal value of about US$2,500.

Once gold breaks through US$2,000, Graham believes it could attract skeptical buyers.

"There's still more legs in it even though it's gone up a lot."

Serge Pepin, vice-president Investment Strategy of BMO Global Asset Management, also sees gold rising despite fears that India, the world's largest buyer of the metal, could slap a bigger tax on gold imports.

Increased demand for jewelry due to improving economic conditions and the prospect of higher interest rates, should propel demand for gold as a hedge against inflation, he said.

"We still see some upside but if you look at where it was 10 years ago to where it is today, we think that the pace of growth in gold will be relatively subdued -- positive but subdued," Pepin said.

He also points to gold hitting $2,000 over the next 18 to 24 months.

Not everyone agrees.

Goldman Sachs recently lowered its price forecasts for gold in 2013. The U.S. investment bank cut its six- and 12-month forecasts by about seven per cent to US$1,800 per oz. It also introduced a 2014 gold price forecast of US$1,750.

Skeptics aside, there are those who gold as ain investment for uncertainty times.

Some observers believe the looming debt ceiling crisis in Washington could support higher bullion prices.

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