Investors turn to gold

The phones have been ringing off the hook at Blanchard & Co., the biggest bullion dealer in the United States as investors buy up gold coins and bars like never before amidst the market meltdown.

The increase has come from both new and existing clients with business five times busier than normal, says Blanchard’s vice president of economic research, David Beahm.

“We always see an uptick when people are looking for safe assets but we’ve near seen anything like this before,” Beahm says from New Orleans. “Investors are incredibly nervous about what’s going on in the market and they realize that gold is a safe haven.”

The demand has been taking its toll on the U.S. Mint, which has had trouble keep up with the pace; the mint has suspended sales of its American Buffalo 24-karat one oz. gold coins on Sept. 26 and American Eagle gold coins in August after a spike in demand left inventories depleted.

Clients can still purchase physical gold according to the price of the day, but Beahm says it’s taking up to a week for delivery instead of the usual two days.

He likens the current situation the stock market crash of 1987. “People are pulling their money out of paper assets and putting it in tangible assets,” he says.

But Jon Nadler, a senior analyst at Kitco in Montreal, says that while volume is up, the transactions are going both ways with more buying and selling.

“There’s no comparison to what happened in 1980 and 1987 or Y2K,” Nadler says. “This is not a one-way street where people are lining up at 5 a.m. to clear out the vaults of the bullion dealer; that panic has not manifested itself yet.”

But that was before the US$700-billion bailout package was rejected in the U.S. Congress today.

In a note to subscribers, Nadler commented on the spike in gold — up US$25 to US$903 he said gold “stepped into its safe-haven combat boots as the lone standout in precious metals today.”

Jill Leyland of the World Gold Council, based in London, UK, says that exchange traded funds have also climbed significantly.

She says the fundamentals for gold are strong.

“Supply is constrained, mine output has stagnated, central banks are selling less of it so we haven’t got as much coming on to the market,” Leyland says. “We’ve had this longer term trend of investors pick up gold more over the last few years.”

She says the sub-prime mortgage crisis that hit in August 2007 encouraged a lot more people to look at gold as an investment.

“That eventually pushed gold up over US$1000 per oz.,” Leyland explains.

The gold price retreated but then concerns of a global slowdown mounted as commodity prices fell and the dollar grew stronger.

“So what we had then was not investors-as-a-class bail out but the more short-term speculative investors bailed out,” Leyland says. “That was when the price fell und US$800.”

The low price sparked interest with jewelry buyers in India and the Middle East, Leyland says, followed by a spike in demand for coins in the U.S. after major banks went bust.

“Since then people are starting to buy gold again heavily,” she says.

And it’s agreed across the board that the interest in buying physical gold will continue with predictions rising above US$1,000 before the end of the year, but only temporarily.