Hoarders Say Gold Is Last 'Safe' Investment

Jan. 28, 2011 — -- The price of gold may be trading at a three-month low, but that is not stopping people from hoarding the precious metal in their homes, bank vaults or even in hiding places.

For some, fears of the country's growing levels of debt and inflation make currency seem less dependable, and gold and other precious metals seem rock solid.

Pete Sorrentino, vice president of Huntington Asset advisors in Cincinnati, has investments in gold bars and bullion coins and manages a $95 million fund for his clients, 2.6 percent of which is actual gold held in a depository. He said the low price of gold makes it an ideal time to buy it as global financial markets fare well.

"This is an ideal time for anyone who has missed out and want participation in gold, as long as the attention is focused on problems in Europe, and we tend to get fairly good reports in earnings season," said Sorrentino. "You'll see people continuing to favor financial assets over the precious metals."

He said he prefers coins over bars because the assay, or examination process, is easier. He said coins are more difficult to counterfeit and manipulate than gold bars. But with the lower price of gold these days, he prefers silver coins.

"I tend to give them out as gifts," said Sorrentino, claiming he is not vast hoarder. "The people to whom I gave them a couple years [ago] were quite happy later."

Gold was trading at a record high at the end of 2010, with its contracts trading at a peak of $1,430 in December.

On Thursday, it was trading at $1,318.40 on the Comex division of the New York Mercantile Exchange, its lowest level since Oct. 4, according to Dow Jones.

But the dip does not faze some gold investors.

Scott Van Steyn, an orthopedic surgeon in Columbus, Ohio, said he will continue to invest in gold. He blames the Federal Reserve's monetary policies for manipulating the money supply but, he said, that has led to an increase in the value of gold.

"Ben Bernanke hasn't been right about anything since the crisis started," said Van Steyn. "All they know to do is print money and create asset bubbles. As long as they know how to print, the value of hard assets will continue to increase long term and you won't lose your purchasing power."

The Federal Reserve first announced an unprecedented $600 billion purchase of treasuries in November to try to stimulate economic growth and boost inflation. Some critics said the measure will simply increase prices.

Van Steyn he does not own any gold in his home because of safety concerns. But that has not stopped him from storing it elsewhere. He also has invested in a fund with Sprott Physical Gold Trust, which still allows him to have access to the actual gold.

"I think that [the world is] so early in the precious metals bull market that any little pullback is a long-term buying opportunity," said Van Steyn.

Jeffrey Nichols, managing director of American Precious Metals Advisors, said it is a wise idea to invest in a variety of assets, whether that's stocks, mutual funds or gold.

"I think it's perfectly reasonable to have 5 or 10 percent of your investible assets in physical gold as a diversifier and insurance policy," said Nichols.

Nichols, who does not discuss his personal investments, said gold hoarders can own small gold bars, but more common are gold bullion coins from all over the world, such as the American Gold Eagle coin, Canadian Gold Maple Leaf coin, Austrian Philharmonic Gold coin or South African Krugerrand coin.

He said gold hoarders can range from small investors to high net worth individuals.

"For some investors, it's important to have physical possession of the gold," said Nichols. "They either feel more comfortable with it or have an irrational or rational fear of the market collapsing and that they won't have access to their investment."

Nichols said he does not fear the market will collapse in the near future.

"I don't think that's going to happen," said Nichols.

But some investors have that fear and, he said, it is their prerogative.

"Gold investors tend to be more conservative and more fearful of future economic performance and financial market performance," said Nichols. "They fear higher inflation; they fear a decline in the U.S. dollar related to foreign currencies and a breakdown in the financial system. That may be irrational, but this is what motivates some of the people who take physical possession."

Jonathan Xiong, director of global asset allocation fund for Mellon Capital Management, said holding gold can be a good idea if you are able to hold it long-term, and with minimal storage costs. He said it could be a "safe haven" as an investment, but he warned that the fear of a monetary collapse may not be a rational reason to hoard gold.

"There's this notion out there [that] in the case of a collapse things will be all good if you have gold," said Xiong. "But if you think the entire fiat system is going to collapse, than you probably wouldn't have access to the bank anyways."