If you pay attention to financial markets, you are probably aware that the price of gold has been skyrocketing. Not to long ago (the end of 2003), gold sold for $400 an ounce. Now, gold is above $1,400 an ounce. Gold has risen rapidly since the financial crisis, thanks to a number of factors. First of all, gold is seen as a safe haven. Many investors piled into gold for its “tangible” value in the wake of a financial crisis that had many uncertain over an economy based on fiat currency.

On top of that, gold is also seen as a hedge against inflation. With central banks around the world engaging in practices designed to kickstart inflation, gold seemed a good choice. And, of course, now many are worried about what happens to countries with large debt burdens. Debts left over from before the financial crisis, plus the new debt created to create economic stimulus, have some looking to gold. All of this means that gold prices are through the roof. Many, hit hard by the economy, are thinking that now might be a good time to sell their gold jewelry. After all, you can get $1,400 an ounce, right?

Not so fast. Chances are you won’t be getting $1,400 an ounce at all.

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A lot of newspapers and magazines have been celebrating the rising value of gold and silver over the last few years, citing as a reason why investing in gold might be a good idea. A lot of other newspapers and magazines are noting that gold may be overpriced and that a gold bubble has formed. Regardless of who is right, I think it illustrates a fundamental problem we all face every single day.

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So a few weeks ago I wrote about bearer bonds because I’d heard of them in movies and thought they were, besides insanely protected works of art, the thing to steal if you were going to steal anything. Another term I’d heard in the movies a lot was “bullion” and I knew it was related to gold and other precious metals but I wasn’t 100% sure what it meant.

Bullion actually refers to any previous metal whose value is tied to the metal itself and not some fiat money designation assigned by a government. So the bullion coins produced by the United States Mint have no value designation, they are valued at it’s actual metal value. You can buy 1 oz., 1/2 oz., 1/4 oz., and 1/10 oz. of American Eagle Gold and Platinum Bullion coins.

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Up until August 18th, if you’ve ever wanted to touch a 16.5-karat gold bar, you could make short visit to the Mel Fisher Maritime Museum in Key West. The treasure hunter Mel Fisher, after which the museum is named, found the bar in 1980 from the wreck of the Santa Margarita located 25 miles west of Key West. The Santa Margarita, and it’s much larger and more famous sister the galleon Atocha, were Spanish treasure ships and they were on their way back to Spain loaded with gold and silver (and other precious items). A hurricane pummeled the entire convoy and the Santa Margarita was spread out across the ocean… and this gold bar came from Mel Fisher’s discovery of a portion of the loot.

History lesson aside, the 16.5-karat, 74.85 ounce gold bar was in the museum and any visitor could touch it. 74.85 ounces of gold has a market value of around $92,589 (at ~$1,237 an ounce) but it’s “uniqueness” and history puts the value at over half a million bucks. I’m surprised that the case was designed in such a way that someone could remove the bar. It seems like it wouldn’t be too difficult to build a case that would make this impossible… then again it sat undisturbed for twenty-five years.

I really hope the thieves don’t melt it down.

No arrests yet in theft of gold bar from museum [CNN]

(Photo: meltmatter)

Gold has always been seen as a nice safe store of value. When the world is in crisis, people turn to gold for stability, which is why the price of gold is around $1,200 an ounce these days. I’m not an investor but one important lesson, repeated by savvier investors, is that gold itself may be an investment but it’s true value is as an independent store of value. Should your home currency ever be deemed worthless (in the case of hyperinflation), you could take your gold to another country and convert it into their local currency. If your government were to collapse, you could go elsewhere and still have purchasing power.

You can see how gold has value when the world is in crisis right? That’s given rise to a lot of companies that are looking to make money from the increased popularity in gold. I’m sure you’ve seen ads from Cash4Gold, looking to pay you top dollar for your unwanted jewelry, but there are also companies on the other side. Companies who have gold and are looking to sell it. One of those companies, made popular by their spokesman Glenn Beck, is Goldline.

People want to know – is Goldline a scam? Representative Anthony Weiner of New York seems to think so.
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When it comes to interesting and innovative banking products, Everbank has always led the pack. With some banks you get the same vanilla options – checking, money market, savings, CDs. Reward checking is rare and “exotic” CDs are even rarer (how many banks offer one of the non-standard CDs?).

Recently I received an email from them about a 5-year diversified metals CD. The basic idea is that it’s a principal protected CD with a 5 year term that appreciates if the price of gold, silver and platinum increase. If there is no gain, you receive your principal back.

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Have you ever heard of the wealth effect? Basically, it’s the idea that you will spend more because you feel richer. You feel richer because you think home prices are up or because your stock portfolio has increased in value. Economists like to talk about the wealth effect whenever they look at consumer confidence and consumer spending numbers, because those are economic figures. It’s a term that really becomes very popular when the stock market goes up, as it has in recent months. People see their portfolios, with all that unrealized gain, and feel richer. It was a popular topic in the dot com boom and the subsequent housing boom. You see home prices go up and you feel richer.

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One of the unintended, though predictable, consequences of the unprecedented rescue of the United States financial system is that there will be higher than average inflation figures for years to come. While it’s been popular to dispute the reported Consumer Price Index (CPI), the reality is that the marketplace doesn’t really listen to the reported stats. It reacts to reality. Your boss doesn’t walk into your office and say “Oh, CPI says I need to give you an x% raise this year to maintain your purchasing power.” and the grocery store doesn’t increase the price of a head of cabbage a few cents every month because the BLS came out with another report.

So we need to be proactive and be aware that inflation is a real concern, before it becomes front page fodder for newspapers.
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