11/17/2011 1:55 PM ET|
Gold appeals to a younger crowd
The precious metal's allure is thousands of years old, but these days it's attracting a new breed of young investors who are leery of stocks.
Gold's spectacular decade-long run -- abetted recently by Europe's sovereign-debt crisis, the U.S. budget deficit and fears of a double-dip recession -- has tapped a new vein of investors in their 20s and 30s.
Gold's popularity among young investors speaks to the metal's role as a storer of wealth, and it says a great deal about a generation that has seen asset bubbles burst and governments fail to clear a path to prosperity.
Many young gold buyers have little faith in equities, and, unlike older investors, they are more inclined to consider alternative investments. Some seek tangible assets as a counterweight to stocks, bonds and cash in the aftermath of the 2008 U.S. financial crisis.
Divnain Malik, the head of retail sales at Gold Bullion International in New York, a seller of physical gold, said that while half of his clients are baby boomers, the "younger demographic seems to be catching on" to gold.
Indeed, the 25- to 35-year-old cohort is the company's fastest-growing segment, Malik said. About half of the new accounts at his company were opened by people in their 20s and 30s. Younger clients are increasingly sophisticated, Malik said, do not want to repeat others' mistakes and are protective of their investments.
Said Malik: For them, "it's not about the risk in gold, it's the risk anywhere else."
Gold's track record is clearly a big draw. Gold has enjoyed a string of nominal record highs for the better part of two years. Recently, though, the deepening of the eurozone crisis has skewed gold's generally inverse relationship with stocks, with gold losing some of its allure as a safe haven even as Europe's situation worsened. Some large investors, pressured by steep tumbles in global equity markets, have sought refuge in cash.
But gold is still comfortably ahead this year. SPDR Gold Shares (GLD, news), an exchange-traded fund that is a proxy for the metal, was up 23.6% for the year through Nov. 16, according to investment researcher Morningstar.
Unlike Europeans and Asians, Americans don't have a long tradition of owning gold. Yet contrary to stereotype, most U.S. gold investors are not guns-and-bunker renegades hoarding physical gold to fend off the collapse of civilization. Demographic studies on precious-metals investing done in the 1970s and 1980s actually showed a large percentage of college-educated buyers, with only a small portion owning gold for "doomsday scenarios," said Jeffrey Christian, the managing director and founder of CPM Group in New York.
Studies in the 1990s offered similar findings and detected rising participation of women investors, Christian added. This finding is consistent with broader trends of women taking the lead in family investing decisions.
These days, young buyers' interest in gold is hampered by the metal's high price, Christian said. Student loans, the financial pressures on young families and other obligations leave little money for investing or speculation, Christian noted.
Despite such obstacles, the recent financial crisis was severe enough to make younger investors re-evaluate their investing strategies, he said.
Kurt Brouwer, the chairman of Brouwer & Janachowski in Tiburon, Calif., has noticed greater interest in gold across all age brackets. "Any time you have something doing well, people get interested in it," he said.
Brouwer walks new clients through the three main avenues of precious-metals investing. For speculators, a good alternative is to buy one of the several exchange-traded funds backed by gold. Funds are more liquid than bullion, Brouwer said.
Shares of gold-mining companies are another alternative, Brouwer said, since stocks "have not soared nearly so much as gold" futures.
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Are the investors actually in possession of bullion, or claims to bullion?
If they are in actual possession, thinking of survival mode, they should be advised that in a worse case scenario, it could be very difficult to convince anyone concerning purity and quantity. Unless the bullion occurs in the form of official government issue, which multitudes of people are familiar with, it could be almost impossible to purchase with it. Then there gets to be the consideration of change back, on any purchase made with gold---again, it could be very difficult to use real gold bullion as legal tender.
The concept of investing in gold bullion, and its use as a currency, is not without substantial risk.
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