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$1,100 and maybe more: a golden moment for the price of gold

Stuart Stoops, director of operations at Capital Pawn in Tampa, is reflected at the pawn shop, which has been buying gold jewelry and other items that might once have passed to family.

CHRIS ZUPPA | Times

Stuart Stoops, director of operations at Capital Pawn in Tampa, is reflected at the pawn shop, which has been buying gold jewelry and other items that might once have passed to family.

Business is brisk at the Capital Pawn shop in Tampa, where a recently installed "We Buy All Gold" sign draws in the down-on-their-luck.

Some are selling gold-laden jewelry and other items they had planned to give to children and grandchildren. "But mortgage and food tend to take priority over handing down heirlooms," said Stuart Stoops, the store's director of operations.

The one upside to sellers' angst: They've picked a golden time to cash in.

Gold prices have been on a record tear, topping $1,100 an ounce this week.

Not since the early 1980s — also a time of high unemployment and monetary concerns — has gold fever been so rampant. Like then, a chief culprit is lack of faith in the U.S. dollar. Gold has soared about 50 percent over the past 12 months while the dollar has dropped about 15 percent.

Gold buyers looking for a piece of the trading action are omnipresent. Gold-rush kiosks are spreading at malls such as the Westfield Brandon Town Center. The Internet and late-night TV remain flush with gold-buying entities bearing names like hardgoldcash.com and sellmygold4cash.com.

Across the Atlantic, even London's iconic Harrod's store is embracing the golden era. Last month, it began selling gold coins and bullion, ranging from one-ounce keepsakes to the Fort Knox-size 12.5-kilogram bricks.

Earl Waters, one of the owners of David Reynolds Jewelry & Coin in St. Petersburg, has noticed more activity lately in sales of gold bars and coins compared with jewelry. But he thinks buyers are motivated by the sour economy rather than taking profits.

Stoops of the Capital Pawn shop in Tampa, concurs with that assessment. On a daily basis, about 15 people come in to sell gold, most of them totally unaware of the runup in prices. In some cases, they had expected only $100 for their stash and are pleasantly surprised to triple that amount.

Lately, Stoops has noticed more middle-class and upper-class customers. "You're seeing a new generation of people selling their gold, a totally different clientele," he said. "People who have never, ever been in a pawn shop."

Hot commodity

Like Dutch tulips, unprofitable dot-com startups and downtown Miami condos, could gold be another big bubble? Or is it a still-undervalued commodity that merits a higher price given the United States' currency problems and rising debt?

James Steel, chief commodities analyst at HSBC, said Tuesday there may be short-term profit-taking among traders as the dollar stabilizes near a 15-month low. But he doesn't see a gold bubble. "Longer term, I think the bull market is intact," he said.

Timing commodity peaks can be tricky. Ask anyone who cashed out their golden trinkets in 2006 when gold prices were at a then-25-year high of $600 an ounce.

The run-up since then, though impressive, still pales compared with the 1980s gold rush.

After setting a record of $1,111.70 an ounce on Monday, gold futures fluctuated Tuesday, ending up $1.10 to settle at $1,102.50. Adjusting for inflation, gold would have to top $1,885 an ounce to set an all-time record.

Some are predicting that threshold is in sight.

Commodities investor Jim Rogers drew widespread coverage last week after predicting to Bloomberg Television that gold might reach $2,000 an ounce. According to the New York Times, that prompted a rebuke from well-known economist Nouriel Roubini who called the forecast "utter nonsense."

Still, the current climate of economic uncertainty only plays to the strength of the precious metal. Gold tends to do well in times of war, economic upheaval and fear.

Under one scenario making the rounds of bloggers, gold could soar even higher if inflation forced the United States to buy more gold to support its currency. Meeting its historic ratio of 40 percent gold reserves to the country's money supply would hypothetically push gold prices up to $2,700 an ounce.

The latest rise to the $1,100 mark was caused in part by India, which bought some 200 tons of gold worth nearly $7 billion from the International Monetary Fund last week, a measure of protection if the U.S. dollar falls further.

There's one thing that may tame the trading frenzy on the futures market, at least for a day. U.S. government offices and bond markets will be closed today for the Veterans Day holiday.

Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242. Follow him on Twitter at twitter.com/JeffMHarrington.

FAST FACTS

A golden formula

The price paid for gold from a dealer depends on the amount of metal and the karat level.

Pure gold is 24 karats. Getting near the current price of $1,100 an ounce is based on 24-karat metal.

14 karats is about 58 percent pure gold. So an ounce of 14-karat metal should be worth about $630.

18 karats is 75 percent pure; so an ounce should be worth about $825.

There are just over 31 grams in a troy ounce of gold.

$1,100 and maybe more: a golden moment for the price of gold 11/10/09 [Last modified: Wednesday, November 11, 2009 10:03am]
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