News from The Globe and Mail
Insurance that glitters
Wednesday, January 22, 2003
Talk about your gold bug.
Joseph Martin, a Vancouver-based investment conference organizer, is promoting what he says will be the biggest gold show in North America since the Bre-X debacle. And he's offering a 5-per-cent discount to exhibitors who pay in gold.
Moreover, Mr. Martin, president of Cambridge House International Inc., says he has also converted all of his registered retirement savings plan to gold and gold-related stocks.
"I'm gambling it's going to go up," he says.
He is by no means alone, according to precious metals dealer Bart Kitner, president of Montreal-based Kitco Precious Metals Inc.
With gold prices rising over the past year to around $356 (U.S.) an ounce from $280 while stock markets have been falling, he says he has seen "a tremendous increase in business."
Nevertheless, Mr. Kitner is not urging his customers to put all their money into gold. People buying gold as a tangible asset should regard it as something akin to an insurance policy, since it is an asset that will likely go up in price when other markets go down, he says. "It's like insurance in that you never really want to need it. You don't ever want to see gold at $5,000 an ounce, because what are your other assets going to be worth then?"
Those who want to hold gold as a tangible asset usually buy it in the form of bullion or coins. Gold coins, such as the Royal Canadian Mint's popular Maple Leaf coins, tend to be more expensive than bullion because they cost more to make, but the extra cost can often be recovered when they are resold, Mr. Kitner says.
He explains that gold wafers, the smallest form of bullion, retail at about $12 an ounce over the cost of gold, while bigger gold bars cost less to make and are therefore relatively cheaper.
But the premium you pay for manufacturing costs is not reflected on the resale market, where bullion is worth only its weight in gold. Gold coins on the other hand are typically sold and resold for about 5 per cent over current gold prices, so that a Maple Leaf coin today would cost about $18 an ounce over the price of the gold they contain, but could be resold for the same price.
A cheaper way of buying gold is to purchase a certificate giving you ownership of a piece of gold stored in a vault. Traditionally, these certificates were for a specific gold bar allocated to a purchaser, who would have to pay storage fees.
More popular now, according to Mr. Kitner, are unallocated certificates from institutions, such as the Perth Mint in Australia, that are backed by a pool of gold held in vaults, but do not match each certificate to a specific bar of gold and do not charge storage fees.
An on-line version of the unallocated certificate is provided by GoldMoney.com, a business operated by Net Transactions Ltd., based in Jersey, Channel Islands, which offers users the opportunity to exchange gold with one another and use it as a digital on-line currency, says managing director James Turk.
Todd Bruce, president and chief operating office of IamGold Corp., a Markham, Ont.-based company that owns stakes in West African gold mines, says his company is planning to give shareholders the option of taking their dividends in GoldMoney. He maintains that the advent of digital gold currency will likely increase the popularity of gold, as it will provide people with a way of using it as a convenient mechanism for exchange, as well as a safe way of storing value.
If you'd rather keep gold as a tangible asset in your own home or safety deposit box, you're better off buying coins or one-ounce gold wafers, rather than gold bars, says Michael Levy, managing director of Surrey, B.C.-based Border Gold Corp.
If gold takes off because other investments or currencies falter, you may want to be able to cash in your gold a little at a time, he says.
© The Globe and Mail