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Gold rush 

Economic worries lead locals to invest in precious metals

With gold commanding big money, residents are taking - some of their old jewelry to David Bayuk at Colorado - Precious Metals and Coins Inc. - ANTHONY LANE
  • Anthony Lane
  • With gold commanding big money, residents are taking some of their old jewelry to David Bayuk at Colorado Precious Metals and Coins Inc.

Banks may be collapsing and gas prices soaring, but Laura Wilson still was not prepared for a sight that greeted her on a recent trip to an organic grocery store: a $6 carton of eggs.

"I had to call my husband to make sure I wasn't hallucinating," she says, her voice conveying outrage and, perhaps, a bit of satisfaction. She sees an upside: "At least we invested in silver and gold."

These are scary times for the U.S. economy, but Wilson is among a growing group of precious-metal investors feeling giddy over their holdings' enduring value. In the decades since the U.S. came off the gold standard, they argue, Americans have been duped into believing little green slips of paper are actually worth something.

Now, some analysts believe, a crisis of confidence threatens to unleash a brother of last century's Great Depression and reveal the dollar for what it is. Climbing prices for food, gas and even precious metals could constitute just an early sign.

"It's like a big prairie fire and nobody's saying anything," Wilson says.

Economics lesson

Gold and silver are rocketing in price. An ounce of gold that sold for less than $300 five years ago could have fetched more than $1,000 for a few days in March. Silver prices peaked at more than $20 an ounce in March, nearly double the value of seven months earlier.

This is a happy trend if you invested in either metal before their recent highs. But some see these numbers in a more relativistic way; gold's worth the same as it always has been, they say. It's the dollar that's plunging.

"It's going to fall off a cliff," says Jeff Wright, a computer network technologist, precious-metals proponent and Colorado field director for Rep. Ron Paul's 2008 presidential campaign.

At Paul's local headquarters in a North Academy Boulevard strip mall, Wright lays a $20 bill and a 1920 gold coin, denominated $20, on a table. In 1920, he says, either would have bought a custom-made man's suit.

"Now what's happened since 1920?" he asks. The $20 bill might cover a fast food meal for two. Most of its value, Wright says, has been inflated away. But the coin, containing an ounce of gold, could still buy you a nice suit. It's now worth close to $1,000.

Wright uses the demonstration to launch into an abbreviated economic history lesson. The Great Depression that hit the U.S. in 1929 was, as he explains it, a banking problem that turned nasty when the government started inflating the dollar relative to gold reserves.

Beginning in 1933, U.S. citizens could no longer ask the government to exchange currency for gold, but gold reserves still backed the dollar's value internationally until 1971. Wright says the U.S. economy has really spun out of control since then, with an inflationary bubble growing through waves of speculation, recently in dot-com companies and now real estate.

Gold arguably has intrinsic value, but dollars depend on confidence, since they can essentially be printed without limit. When the bubble ultimately bursts, as Wright says is starting to happen, that confidence can vanish.

The solution, Wright believes, will be a return to independent banks with gold-backed currencies, all maintained through the wonders of the Internet.

"It's back to the future," Wright says, eyes gleaming.

Heady times

Incidentally, it's difficult to draw lines between supporters of Paul a Republican who believes U.S. fiscal policies create a dangerous "inflation tax" and precious-metal proponents. Laura Wilson has campaigned for Paul; she cites Wright as an authority on metals.

Charles Aligaen, a county organizer for Paul, invests in gold and silver and collects old coins. Paul has warned against the dangers of a loose currency, and Aligaen sees signs of danger everywhere.

"The Titanic is getting ready to hit the iceberg right now," he says.

These are also heady days for those who trade in gold and silver. David Bayuk is the owner of Colorado Precious Metals and Coins Inc., on Union Boulevard, and he has had his hands full in recent weeks, particularly after being featured in a television news story about gold. Some are coming in to sell old necklaces and bracelets; since Bayuk buys based on the weight of gold, high gold prices can bring big smiles. Store regulars, though, tend to be precious-metal advocates.

Paul Ballantyne calls them "gold bugs."

"We're not as bad off as people think we are," argues Ballantyne, an economics professor at the University of Colorado at Colorado Springs. He's been teaching economics for 50 years; he was 4 when the U.S. got off the gold standard in 1933.

"We left, and we should have," he says. Ballantyne suggests that those who want a return to gold-backed currencies might take a bleaker view if they lived the Great Depression: "Poverty today is nothing like it was then."

Also, gold prices have risen before. The metal crested above $800 an ounce in 1980 before sinking close to $200 in the late 1990s.

Ballantyne suggests a measured approach to investing: "I would not speculate on a commodity price that goes up and down."

lane@csindy.com

  • These are scary times for the economy, but precious-metal investors are feeling giddy.

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