It's a Tuesday and, at least for a day, the stock markets are showing a gain, mostly due to the fact that the Fed has announced that it will be keeping interest rates low in the wake of the S&P's historic downgrade of the U.S.' credit rating. And at the same time, the price of gold has hit an all-time high - a recurring theme for many days in the past few months and years - this time reaching a peak of $1,782 per ounce before eventually settling about $40 lower by the end of the trading day.
The fact that the record-high price of gold continues to surge is not lost on a pair of women sitting in an air-conditioned conference room at the north end of Bend. Before them is an array of gold jewelry. Small pieces, mostly: earrings, necklaces, rings. Across a table, a man carefully inspects one piece after the other. The two women, one quite elderly and the other decades younger, wait to hear how much cash they're about to rake in. If they like the offer they hear, they'll get a check on the spot.
Just a day later, the stock markets again sink heavily. But gold? Still surging, hitting another high and tickling the $1,800 mark. This traveling gold-buying show operated by an Arizona-based company called British International is just one of many such businesses that is capitalizing on both the record-high gold prices and the down economy that has some folks emptying their jewelry chests for pieces they can turn into next month's mortgage or car payment. At the same time, others investors (professional and otherwise) are buying up gold, betting that it and other precious metals could serve as a hedge should the global economy take a catastrophic nosedive.
Some critics of the hype surrounding gold have said that gold buying and selling companies are drawing on the fears of Americans who are trying to weather one of the worst recessions in our country's history. Regardless, the amount of gold changing hands in the past few years is evidence that such fear surely exists in our society.
Randy Kocher, a 30-year veteran of the jewelry industry who owned his own business before the recession hit hard, has been working as a buyer for British International for about eight months now, skipping from city to city, evaluating the pieces of gold, silver and the occasional antique. The customers come in response to the business' heavy advertising, which has appeared in this publication, some of them looking for quick money.
"It's a sign of the times," says Kocher while his coworker continues to evaluate and weigh the two women's gold jewelry.
"There are a lot of people who might have had money at one time, but have fallen on hard times," says Kocher, adding that many of their customers are older people who have excess jewelry that they don't plan on wearing and could use the cash.
If a piece is exceptional, it will be sold as jewelry, but Kocher says the vast majority of the gold British International buys (at an amount determined by that day's gold prices) will be melted.
The buying and selling of gold - an industry that is nearly omnipresent in television, radio and print advertising - is surely, as Kocher says, a "sign of the times." Over the past five years, as the dollar has fallen in value, the price of gold has skyrocketed by about 156 percent, it's value in U.S. dollars has increased during that period by nearly $1,000 per ounce. Since January of this year alone, the price per ounce has increased by more than $250. The value of the dollar, however, has fallen by about 13 percent in the past five years.
A glance at the stock ticker reveals that gold is a valuable commodity these days, but understanding why its price has risen so drastically is a bit more complicated. According to financial experts, gold, like many other commodities, doesn't depend on the value of a currency of a particular country. With nations around the world mired in debt, investors are putting more money in gold. Some speculated last week that the Fed's decision to keep interest rates low for the next two years could keep the price of gold high while the dollar continues to fall.
Jeff DeBoer is the managing director of the University of Oregon's Security Analysis Center and spent the previous decade as the chief financial officer for Lithia Motors. Before taking the job with Lithia, he was an analyst with Fidelity Investments. Although he describes himself as not a "gold bug," he has been keeping an eye on the price of gold in recent months.
Overall, while he acknowledges that gold can be a good investment at times, he says the current hype over the long-term value of gold is far overstated.
"You want to be investing in things that are undervalued, not things that are all over the media," says DeBoer.
If the global markets continue to fall, along with currencies, DeBoer says it's possible that gold could eclipse $2,000 per ounce. He points to some other interesting factors that could also continue to pump up the price of gold, including what he calls a "physical demand" for the metal. Over the past few years, a growing middle class in China has stoked consumer interest in gold jewelry. The same can be said for portions of India's consumer market. DeBoer, who worked in Tokyo with Fidelity and the Fuji Bank, said that these growing markets are similar to what happened in Japan more than 20 years ago when consumer demand there nudged up the price of gold.
DeBoer does not say, however, that investing in gold is a categorically bad idea. To the contrary, he says a well-balanced portfolio should be 10 percent commodities, or more if there is overwhelming instability in the global market. Still, he feels that a significant driver behind gold prices is the continued hype from the media and advertising from gold-buying and selling outfits.
In some cases the media's reporting on gold and precious metal prices has been intertwined with blatant promotion of gold and specific gold buying businesses. As gold prices surged last Tuesday, commercial breaks during the mid-day Fox Business coverage of the unstable markets consisted primarily of advertisements promoting either the buying or selling of gold. Around the same time, the commercial airtime on Fox News was also heavy with gold advertisements and later in the week, the banner ad above a Forbes.com story about gold topping $1,800 an ounce featured prominent gold advocate and former Fox News pundit Glenn Beck endorsing Goldline.com.
Goldline.com is hardly the only company taking advantage of the surging price of gold - as well as the culture of fear that's been cultivated during the recession by political ideologues - but the California-based online gold seller has often been the target of some of the harshest criticisms when it comes to hyping the value of gold. In fact, in 2010 the company's executives were called before a congressional subcommittee and were accused by now-disgraced Rep. Anthony Weiner of misleading and playing off the fears of its customers. He keyed in on one of Goldline's past selling points, which was assurance that the gold coins they sold could not be confiscated by the federal government, despite the fact that gold confiscation laws (created during the Great Depression to prevent gold hording) have been off the books since 1974.
"Should you be exploiting people this way?" the congressman asked Goldline Executive Vice President Scott Carter.
Cash4Gold.com, a mail-in gold buying outfit that once used early '90s rapper MC Hammer and the late Ed McMahon as spokespeople, was the subject of an in-depth investigation by NBC. Other companies have also come under scrutiny for paying customers, many of them elderly, a mere fraction of what their gold is worth.
But this modern day gold rush has also been a boon for small business owners, especially independent jewelers, which are often able to provide customers a higher price for gold than online retailers. One of these small business owners is John Voulzow, who operates Pave Fine Jewelers in downtown Bend.
Working on a custom piece at his bench on a recent afternoon, Voulzow says that the relatively recent addition of gold buying to his business operation has helped him weather the ongoing recession. But for other jewelers, gold buying has been a necessity to offset sluggish sales as of late.
"It's definitely helped our bottom line, but we hear about stores in the Midwest where it's saved their business," says Voulzow.
Many of the jewelry stores in the Bend area, both independent and chain alike, offer some sort of gold-buying program, following an international trend. The same goes for nearly every pawnshop in the area, and some shops, like Cash Connection are able to evaluate, weigh and offer a purchase price all at once, rather than send the items to another entity.
As the price of gold continues to climb, which is likely, according to recent financial reports, it's unlikely that gold fever will dissipate. But even market experts can't say for sure how long this climb will last, even if it looks like a great investment for bad times - and that might be the problem with the fervor surrounding gold prices.
But that sort of speculation isn't necessarily pointed out in the hotel conference rooms and mail-in-your-gold television commercials where hurting folks are cashing in their valuable metal for cash - after all, landlords and the electric company don't accept bullion. For the time being, cash is still king. As for the future, even experts aren't quite sure.
"I've always seen gold as a safe haven hedge in case the world goes to hell and who knows, the world may go to hell and gold will be good," jokes University of Oregon's Jeff DeBoer.