Gold outshines other investment assets

Phil Castle
Business Times

Hedge Co
Teresa Mays sells a variety of gold and precious metal coins and bullion at Hedge Co. in Grand Junction. Mays said economic uncertainty has driven up precious metals prices to record levels. (Business Times photo by Phil Castle)

All that glitters isn’t gold. Nonetheless, the lustrous yellow metal continues to outshine other classes of investment assets in a rally that’s extended 10 years.

Teresa Mays, a Grand Junction businesswoman who makes a living buying and selling gold and other precious metals, considers precious metals not only an important component of an investment portfolio, but also a form of insurance against volatility. “There’s always a drive to gold when there’s economic uncertainty,” said Mays, owner of Hedge Co.

Gold prices have soared to record levels in recent weeks, hovering around $1,300 an ounce. Gold prices have climbed about 25 percent over the past year and 400 percent over the past decade. By comparison, the broader stock market has advanced about 10 percent over the past year and declined slightly over the past decade.

Prices for other precious metals similarly have risen: up to about $21 an ounce for silver, $550 an ounce for palladium and $1,630 for platinum.

Precious metal prices traditionally climb in inverse proportion to the sagging value of the U.S. dollar. Metal prices have trended upward in recent weeks on speculation the Federal Reserve will inject more cash to bolster economic recovery, a move seen as devaluing the dollar. “As long as the Fed continues to print money, I think metals will continue to do well,” Mays said.

Precious metals also are considered a hedge against inflation, which hasn’t yet emerged as an issue, but could. Mays attributes the increasing demand for gold and resulting higher prices to more general concerns about the economy. “With our economy here, it’s got people jittery.”

After such a long rally, there’s some speculation gold  is due for a correction. But some traders expect still higher prices. Mays said she expects economic uncertainty in the U.S., combined with rising demand for gold in such countries as China and India, to continue to buoy prices.

Mays sees more upside in silver prices, which remain low compared to the historical ratio of 15 ounces of silver worth 1 ounce of gold. At current prices, it would take nearly 62 ounces of silver to buy an ounce of gold. Moreover, there’s increasing demand for silver for industrial uses, she said.

Mays said investment portfolios should be diversified, but also include precious metals — perhaps 5 percent to 10 percent. Out of that proportion, Mays said 30 percent to 40 percent should be in gold and the balance in silver.

There are a number of ways to invest in gold, Mays said, including the purchase of stock in mining companies and exchange traded funds that track the price of gold. Mays recommends the purchase and physical possession of gold.

Hedge Co. sells and buys precious metal bullion and coins, including the popular American eagle gold coins. Mays said she offers low margins, selling precious metals for a small percentage above her costs and paying more for metals than others. Unlike businesses that operate over the Internet and through the mail, Mays said she offers a local venue that’s been in operation since 1984. May has worked with the business since 1999. “I’m a local face that offers very competitive prices.”