Digging for options as gold prices fall

San Jose Mercury News

SAN JOSE, Calif.

Gold, that mythical commodity used as a symbol of love, wealth and power by ancient pharaohs, modern-day rappers and untold couples, suddenly plunged in value in recent weeks, tarnishing its luster for businesses, collectors and speculators.

“It’s slow, real slow,” said Bobby Chopra from his empty Cash for Gold San Jose store. “We’ll keep buying until we’re dead, but people who needed cash, or were hurt by the economy, sold their gold a long time ago.”

In the past decade, storefronts began popping up across the country as gold prices remained high and people turned their jewelry and other gold into cash during tough economic times. Now those same businesses are finding few customers willing to sell at today’s low prices.

Lou Rosas, 47, of San Jose, held onto his late mother’s gold chains, necklaces and earrings that were worth more than $3,000 just six months ago when gold was selling for $1,790 an ounce.

But the price drifted down and then, on Tax Day, gold saw its biggest one-day drop in more than 30 years.

The 9 percent plunge left Rosas with jewelry that was suddenly worth about $500 less than it was six months before.

Even though gold prices appeared to have bottomed out at $1,375.72 on April 17 and have climbed back up above $1,400, people such as Rosas are reluctant to sell.

“It’s a perfect time to buy,” Rosas said. “But if you want to sell, you’re not going to get that much.”

Fred Foldvary, a retired Santa Clara University economics professor who continues to lecture in public finance, law and economics at San Jose State, has simple advice for people disappointed in the downturn: Ride it out.

“Gold’s been around for thousands of years,” said Foldvary, who holds gold mining stocks as a minor part of his own investment portfolio. “And gold remains implicit money. Central banks want to hold gold. China and Japan are increasing their gold holdings, so gold operations will continue. It was only this year that the price went down so much.”

As it has throughout history, the value of gold is certain to rise again, based often on little more than speculation and pure emotion.

That works the other way, too, and is what spurred April’s drop, Foldvary said.

“It started with rumors that Cyprus would have to sell its gold holdings to meet its debt and other countries would follow, such as Spain and Greece and other countries that have high debts and need bailouts,” Foldvary said. “After weeks of falling prices, then you had a panic sell and other commodities followed. But there was really no major reason for it all.”

As part of the financial- planning advice that he gives to clients, Chuck Putney of Walnut Creek, Calif.-based Putney-Klein Associates warns about putting too much emphasis on gold.

“Long-term, the best hedge is a balanced portfolio with no more than 5 percent of your investment portfolio in gold,” Putney said.

“Gold is a precious metal. The Chinese like it, and other Asians culturally and historically do, too. But it really has no intrinsic value, and it’s not going to produce any revenue for you if you look at the long-term history of the markets.”