Sellers taking advantage of gold’s price surge

When American families sit down to dinner later today, I’d wager that at many tables the traditional expressions of gratitude -- for family, security, friendship, health -- will be joined by this one:

Thank you, Wall Street, for the price of gold.

Is anybody unaware that gold is currently trading at a record price, having closed at $1,186.90 an ounce on Wednesday?

“The consciousness of the general public about this is amazing right now,” Stan Walter told me this week. He should know. Walter’s Wabash, Ind., company, Precious Gems & Metals, just completed a five-day event buying unwanted gold jewelry and other items from Southern Californians at three Orange County locations.

Nor is he alone. Precious-metals buyers are bidding for household gold on television or in full-page newspaper ads, like those Walter has taken out.

And people are lining up to sell. Scarcely a week passes without a Tupperware-style gathering being staged somewhere in my neighborhood by a gold wholesaler.

Walter, 63, says opportunity, more than the need for cash in this slumping economy, motivates most of his customers. He sells most of what he buys, he says, to an Indiana wholesaler for smelting or resale.

“The economy has nothing to do with it,” he says. “Our average customer is an intelligent senior citizen liquidating her assets to turn it into [certificates of deposit] or give to their children. Women come in with sterling silver sets that their daughters don’t want. Single earrings, dental gold, broken chains, broken romances . . . we buy a lot of history. Maybe one out of 50 is there because they can’t pay the rent.”

It may not take much to prompt people to liquidate old gold, which is typically purchased not for investment but because it catches the eye at the moment when sentiment needs to be served. Sentiment tends to fade over time, leaving behind an object’s raw value that people forget about until what catches their eye is the price of gold and a full-page ad.

That’s what brought Carol Cory to a hotel suite Walter rented near the senior citizen community of Laguna Woods. Cory, who waited with about a dozen other clients of a certain age to show her wares to Walter or another appraiser, said she was hoping to sell a few “no longer useful” items.

“The big ad in the paper reminded me that I had these things -- old wedding bands from family members, jewelry that’s out of fashion, silverware that got ground up in the garbage disposal, old watches that don’t run.”

The appraisal process is educational, like an episode of “Antiques Roadshow.” The appraiser will separate out gewgaws that, while yellow metal, aren’t gold at all (more common than you’d think), and identify which are worth more as collectibles than as raw gold and thus should be kept until the slumping collectors market recovers. The rest gets weighed on a digital scale and its value reckoned against the spot price of pure gold.

While I watched, Walter made a deal for a St. Gaudens double eagle, a pre-1933 U.S. $20 gold piece. In mint condition these can fetch five figures; this one looked like it had been run over by a truck. The offer was for a slight premium above the price of its ounce of gold, in recognition of its vestigial numismatic value.

The transaction was a reminder that the human fascination with gold is a bit mysterious. Its adherents note that it’s easy to transport and hard to adulterate, so you know what you’re getting.

Yet as an investment, gold bullion is a pain in the neck: It doesn’t throw off income and it has to be assayed, or tested, whenever it’s moved from one depository to another (gold coins like Krugerrands are popular because they’re easy to authenticate).

According to a trader’s nostrum I’ve seen attributed most recently to the contrarian money manager John Neff, “Gold isn’t an investment; it’s an enthusiasm.”

Stereotypical survivalists supposedly assume that gold will be a stable medium of exchange after the apocalypse, but who’s to say? You can’t eat it, heat your tent with it or use it to keep the rain off your head. One would think that the magnate of the post-nuclear future would be the guy holding the last can of baked beans, rather than the one with gold bars hidden in the woods.

It isn’t unusual to hear some extremists clamor for a return to the gold standard, a policy that surely contributed to the severity of Great Depression and collapsed, evidently for good, around 1971. Were it in place today, adherence to the gold standard would have ruled out most of the Federal Reserve’s recession-fighting monetary measures of the last year.

Indeed, some attribute gold’s current popularity to doubts about Fed policy, which involves keeping interest rates low, reducing the value of the dollar. A passel of closely followed money fund managers such as John Paulson were recently reported to have plunged into gold, though it’s impossible to know how the metal fits into their overall strategies.

India, Russia and Sri Lanka are big buyers too, plainly hedging against the weak dollar, but I don’t know anyone offhand who’s gotten rich tracking Russia’s portfolio, as one might track Warren Buffett’s.

The present-day surge in gold perplexes some economists. “It’s striking and peculiar,” says Barry Eichengreen of UC Berkeley. If gold were tethered to risks in the broad economy, he says, its price should be much lower than last fall, when economic catastrophe seemed to be just around the corner.

If it’s driven by fear of inflation, Eichengreen thinks that’s premature. “I don’t see evidence of unemployment coming down, excess capacity being utilized, the economy growing robustly and prices going up in 2010,” he says.

The bottom line, he concludes, is that “prices can go crazy sometimes.”

Even today, with prices having soared about 33% year to date (the Standard & Poor’s 500 index, by contrast, is up only about 23%), gold investing bears something of an extremist, even hysterical, aura. The gold trading firm Rosland Capital, for example, employs as a pitchman the right-wing loudmouth G. Gordon Liddy, inveighing against Washington’s fiscal policy.

Let’s not forget that today’s gold price is a record only if one ignores inflation. It would have to nearly double from here to match the purchasing power it had when it hit $850 in 1980, the record on an inflation-adjusted basis.

That gold market is worth remembering for several reasons. It was a quintessential spike, driven by an inflation rate that reached double digits in 1979 and 1980. Within a year, however, the Federal Reserve had knocked inflation out, taking the wind out of the gold market in the process. By 1983 the spot price was down to about $300 per ounce.

Stan Walter, who had launched his precious-metals business in 1979 as the boom took shape, says the subsequent bust drove him out of it by the late ‘80s. “You could not make a living,” he says.

He reentered the market about five years ago, when gold was trading at about $600. The market duly revived, “and all of a sudden everybody and his brother jumped into the business.”

With that pattern in mind, it’s conceivable that sellers like Carol Cory are doing the smart thing -- taking advantage of what may be a gold bubble before it pops. Let others be taken in by the glow of gold’s storied history; the best thing about the price surge, she said, is that “it helped me clean out my drawers.”

Michael Hiltzik’s column appears Mondays and Thursdays. Reach him at michael.hiltzik@latimes.com, read earlier columns at www.latimes.com/hiltzik, and follow @latimeshiltzik on Twitter.