Business

Metal's rise affects jewelry, starts mining talk

Gold futures surged to an all-time high above $880 an ounce Tuesday, Jan. 8, 2008 as traders bet that rebounding oil prices would boost demand for the metal as a safe haven investment.
Gold futures surged to an all-time high above $880 an ounce Tuesday, Jan. 8, 2008 as traders bet that rebounding oil prices would boost demand for the metal as a safe haven investment. AP

Got a sack of gold pieces under the mattress? You're in luck. You can sell them for a high price these days.

Got a sweetheart you'd like to marry? You might pay more than you planned for a gold engagement ring.

The metal hit an all-time high of $924.50 an ounce Jan. 29 and closed at $919.20 on the London market Friday. The price is up 40 percent from a year ago and more than triple what it was in 2001.

It's not a record when adjusted for inflation -- 1980 had much higher prices in real terms -- but it's still a sharp turnaround from recent years.

Experts said demand for gold has risen in part because investors see it as a safe place for their money in times of economic uncertainty, such as now.

The World Gold Council, a London- based group that represents the mining industry, also cites strong demand for jewelry and reduced output from mines.

Whatever the reason, the spike has brought plenty of business to Modesto Gold & Jewelry Exchange, which buys gold items.

"A lot of people who bought at

$300 are now digging it out of their dresser drawers, where they've had it for years and years, and selling it," said Claude Sutherland, co-owner of the Needham Street business.

The high price has varying effects on businesses and consumers: New jewelry could cost more. So could gold for industrial uses, such as electronics. Dentists also use the stuff, but in amounts so small that the cost of their services might not change.

The prices have sparked talk of starting or reviving large gold mines, such as one in Grass Valley that was abandoned in 1956. There are no signs that Tuolumne County will see any projects on a par with the Jamestown Mine, a controversial open pit that operated from 1987 to 1994.

The prices also could prompt people to stake small claims on federal land in the Sierra Nevada, though no increased activity has been seen, said David Christy, a spokesman for the U.S. Bureau of Land Management in Folsom.

"There's a lot of people with claims who just like to poke around," he said. "It's not going to be a big industrial operation."

Once, it backed currency

People have valued gold since ancient times because it is easy to mold, resists corrosion and is just plain pretty.

The United States and other nations once used the gold standard, under which currency could be exchanged for a specific amount of the metal. The U.S. government still holds more than $130 billion worth of gold, mostly at Fort Knox, but this metal does not back up the currency. Today, most currency is backed by the governments that issue it.

The end of the gold standard allowed the price to fluctuate. It tends to drop when the economy is strong, such as in the 1990s, and to rise at the beginning of a recession, said Robert Yockey, a financial planner in Ceres.

Prices could come back down, he said, so he recommends that investors not get in too deep.

"Most financial planners use it as something like 4 or 5 percent or less of the portfolio, just as a balancing thing," he said.

Yockey added that this could be a good time for people to sell some of the gold they bought years ago. They will capture profits and get their portfolios back in balance, he said.

The effect of high gold prices on jewelry depends on various factors, including the number of carats and whether the piece includes gemstones, said Sam Jennings, co-owner of Edwards Jewelers in McHenry Village.

He estimated that a gold band that had cost $700 might be $800 to $850 with the increased metal cost.

Jennings said he has been able to avoid retail price increases because he is selling inventory that he bought when gold cost less. The innate appeal of this metal will keep sales going, he added.

"For our customers, if it's something they want, they're going to get it," he said.

High gold prices have not affected the cost of fillings, crowns and other dental work that can involve gold, said Cathy Mudge, chief administrative officer at the California Dental Association in Sacramento. She said porcelain and other alternatives are available.

Current prices likely will be more sustainable than those in the last big spike in 1980, said James Burton, chief executive officer of the World Gold Council, in a news release. He said the prices have been building for six years and are supported by demand from investors and jewelry buyers.

The council also cited the weak U.S. dollar, which has investors seeking alternatives, and inflation fears fueled by rising energy costs.

Sutherland, the Modesto gold dealer, sees the economic forces at work, too.

"I think it's mostly because people have more trust in the gold than they do in the American dollar," he said.

Bee staff writer John Holland can be reached at jholland@modbee.com or 578-2385.

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