Investors flock to security of gold

Consumers can expect to pay more for gold jewelry in the coming months, with the price of the precious metal on track to break US$2,000 per ounce, experts say.

Russell Oliver

Russell Oliver

TORONTO — Consumers can expect to pay more for gold jewelry in the coming months, with the price of the precious metal on track to break US$2,000 per ounce, experts say.

Gold closed up $10.70 to US$1,612.20 an ounce Monday after earlier soaring as high as US$1,624.30. Several experts say gold bullion could reach the milestone of US$2,000 per ounce as early as next year.

“It means higher prices for any kind of a jewellery product,” said John Kurgan, senior market strategist at Lind-Waldock, a commodities specialist firm.

The value of gold is often seen as a barometer for confidence in the world economy, and has long been a favourite of investors seeking to minimize risk. As investors grow jittery, they buy gold, which is seen as more secure than cash or other investments. That drives up the price of the precious metal, which has nearly doubled in the past three years, from $880 per ounce back in early 2009.

Credit rater Moody’s downgraded Greece’s bond ratings by a further three notches Monday, and warned it is almost inevitable that country will be considered to be in default following last week’s new bailout package.

And with United States politicians struggling to raise the country’s debt ceiling by the Aug. 2 deadline, investors are flocking to the security of gold.

“There’s becoming a lack of confidence in those two major currencies, the U.S. (dollar) and euro currency,” said Kurgan.

“People have been using gold as a store of value, and they’ve been diversifying out of some of those currencies into gold just as a safe haven of sorts and that’s really what’s been pressing (the price of gold) of late.”

On the flip side, the higher price is sending regular consumers into a gold selling frenzy at one Toronto store that buys back gold.

A steady stream of customers flowed into Oliver Jewellery, even as the temperature outdoors felt like a steamy 45 C with humidity. Customers came in one by one with gold bracelets, rings and necklaces, hoping to get a premium on their items.

“Because the price of gold is so high, (business) keeps going up and up and up, People are coming in more,” said store owner Russell Oliver, known for starring in kitschy TV commercials in which he plays cowboy “Loan Arranger” and superhero “Cashman.”

When asked whether people have simply run out of gold to sell, Oliver said it’s mainly new immigrants who drive his business.

While established Canadians may have already cleaned out their drawers, Oliver said new arrivals from countries like Somalia often have “buckets full” of gold, since paper money is often viewed as worthless in more politically unstable countries.

“We sit here everyday saying that: When is it going to stop? Like a tap, they keep coming.”

It was a different scene up the street at Bijoux Village, which specializes in selling gold. Owner Gary Bensimon and one employee waited for customers, but foot traffic was much lower.

Bensimon said the retail business for gold has been soft since it hit $1,000 per ounce.

“When the prices are jumping every day, we have to keep it at a stock level, and when we go to replace our stock, and it costs more, we have to adjust our pricing otherwise we’re losing money so it’s hard for us to operate a business in that environment,” he said. “(Cash for gold stores have) got a lot of press time and a lot of people have stepped into the market setting up businesses and advertising that they buy gold, so its an extremely hot business to get into right now.”