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In jittery markets investors favor gold bars over blue chips

  • 2011-08-24
  • By Linas Jegelevicius

GOLD FEVER: Professor Povilas Gylys asserts that people will keep buying gold as long as the stock market remains volatile.

KLAIPEDA - If you are an ardent gambler in stocks and bonds, you are today likely to be willing to switch to a more reliable form of investment in an economic environment that is wary of a double-dip recession. That investment would be gold.
With a dozen reasons, ranging from a weak dollar, global inflation, a weak European recovery, Chinese rate hikes and even favorable Asian weather to consider, it all boils down to a simple time-proven understanding – gold’s value, many claim, is here forever, while bond prices may drop unpredictably.

The shakiness of the stock markets has boosted gold prices to record highs in recent weeks, with futures rising to 1,888.70 dollars per ounce last Monday in New York, a nearly doubling in price from the beginning of the year.
Gold fever has been felt over the past year in Lithuania as well, seeing gold investment prices jumping by nearly half.
It is good news for those willing to invest their spare money in gold; however, for many Lithuanian pensioners who, unable to make ends meet, have brought their gold jewelry and especially gold bars to numerous pawn shops and seen them sold at low rates a few years ago, the record high gold prices bring only heartache.

“With the prospects of a double-dip recession, well-off Lithuanians, as all wealthy people in the world, feel the jitteryness of shaky stock markets and tend to sell their stocks, buying investment gold instead. Gold investments seem to be the most reliable today, as the gold price has surged so impressively this year, to nearly 2,000 dollars per ounce in mid-August,” Povilas Gylys, a distinguished economics professor and lecturer at Vilnius University, asserted to The Baltic Times.

The record prices have sent scrambling Lithuanian gold jewelry sellers who, responding to the ever rising prices, have to change price tags nearly every day. “I cannot say that gold jewelry sales have been flying in recent months; however, there is a certain increase and, certainly, much interest in the goods,” Viktoras Jokubauskas, a jewelry store owner in Klaipeda, said.
He says that, throughout history, gold has been valued as an attribute of a wealthy life. “The modern time is much different from the early 19th century. However, many young, well-to-do people, upon the warnings of the double-dip recession, remember what their ancestors had always known – if you have spare money, buy gold,” Jokubauskas said to The Baltic Times.

However, Vitalijus Rancevas, director of Aurum LT, a gold store, says that this form of investment is rather conservative. “What I mean by conservative is that one willing to invest in this way ought to bear the perspective of time, i.e. if you buy gold today and want to sell it tomorrow, you will not gain any profit. The gist of this kind of investment is quite different – to save available money. Any currency is subject to value fluctuation, but gold retains its value and it tends to increase,” Rancevas maintained to the weekly Savaite.

For those ready to jump into the investment, he suggests to refrain from investing all their money in gold. “Traditionally, it is advised to have an investment portfolio where gold would make up 20-25 percent of it,” the gold trader says.
Aurum LT sells 1 gram gold bars for 220 litas (63 euros) and buys them at 170 litas, and 100 gram bars are for sale at 15,400 litas and are bought for 14,450 litas.

However, he notes, some people have given in to the jitters and have invested around 70 percent of all their savings in gold. “It does not surprise me. Many investment-prone people fret over the insecurities of the traditional stock markets and seek the traditional tried-and-true ways of investmenting – buying gold. It sends signals to the banks on their interest rates and banking services. A lot of people just do not yet trust the banks. Gold comes as the best option,” Vytautas Versickas, president of Lithuania’s Jeweler Association, maintained to The Baltic Times.

Three years ago, when gold investments just appeared on the Lithuanian financial market, he notes, the bankers were trying to play them down, cautioning that gold prices would eventually go down. “However, it has not happened. A 100 gram investment in a gold bar cost roughly 8,000 litas three years ago and now costs 14,000-15,000 litas. The increase is impressive,” the association head pointed out.

Rancevas says that 1 ounce (31 grams) gold coins and 100 gram investment gold bars are the most sought-after means of investment among Lithuanian gold buyers. “Gold demand has been increasing gradually. It seems it has been particularly active at the present time. To tell the truth, we have run out of 50 and 100 gram gold bars, as well as some Troy ounce gold coins. As far as I know, not only Lithuania, but also some other Western countries have incurred a shortage of investment gold,” the Aurum LT director stated.

According to him, this is a temporary deficit. “There is enough gold, as gold-producing factories, having not foreseen the demand, fall behind in their gold production schedule,” the businessman explained.
Gold fever in money-strapped Lithuania may seem incongruous, with the economic hardships – high unemployment, salary cuts and increased goods’ prices. It, however, comes as no surprise to the gold trader, asserting that those investing in gold do not fall under any particular category of people. “There is no way one could define the gold buyers according to age group, living standards, gender or even social stratum. Simply speaking, they are the people who are savings-conscious and seek ways to avoid a devaluation of their money. That is where gold comes in as a perfect investment, as gold is a liquid commodity – you can sell it any time,” Rancevas emphasized.

Versickas, however, stresses that a lot of elderly people, when buying gold, do not usually even think of the purchase as an investment, “For them, it is about precious time-proof presents.” He goes on, adding: “A few years ago, I would see grandparents coming in with their getting-ready-to-marry grandsons and granddaughters and asking to re-do their old gold jewelry to make it more suitable for the youngsters. Nowadays, I often see seniors who come in alone and buy an investment gold bar or a precious coin for their loved ones. It has been a major shift in the senior customer behavior.”
Versickas warns that gold jewelry cannot be put on par with gold bars or special gold coins. “As a rule, the hallmark of jewelry is often half than that of pure gold bars and coins. The price of investment gold is also calculated differently than gold jewelry, fluctuating depending on gold demand and supply on the world market,” he says. Besides, he adds, in the longer term, gold coins obtain a numismatic value.

In making an investment in gold, the gold experts stress, one should remember the main rule – not all is gold that glistens like it.
“All investment gold is unique for its liquidity, i.e. one can buy and sell it in all countries worldwide. However, we do not buy up, for example, Turkish gold, which is not valued in the world gold market,” Rancevas pointed out.

While gold enjoys record high prices, the prices for silver and platinum, the two other often-quoted precious metals, have fallen back considerably from gold in value and popularity. “Silver prices have plunged from 20-year record highs, reaching less than 40 dollars for one ounce. It does reflect in precious metal sales wherever they take place. Even young people, a traditionally strong segment of the clientele, tend nowadays to snub silver and platinum, preferring gold,” Versickas emphasized.

Gylys says that the gold fever will last as long as the stock markets remain shaky. “It can last for a while, as a double-dip recession is looming close as never before. If it happens, it would not come as a surprise to me. It is something that had been predicted before the beginning of the crisis,” Gylys maintained.