Mendoza School of Business

High gold prices can bring profit to savvy investors

Published: May 12, 2006 / Author: Joshua Tribune

SOUTH BEND — Want to turn a quick profit? You have a golden opportunity if you time things right.

With gold pegged at more than $600 per ounce — its highest value in more than two decades — you can rake in some quick bucks and save some, too.

The trick is capitalizing on the higher demand for gold in today’s market, while also taking advantage of jewelry store pricing policies, local merchants say.

The combination can help consumers whether they’re buying or selling the precious metal.

Here’s how it works: Higher demand for gold means a person can sell it for much more than they could just a year or two ago. About two years ago, for instance, gold was only about $380 per ounce.

At the same time, competition means some jewelers haven’t raised prices on gold items they acquired perhaps several months to several years ago, when it was much cheaper.

People who buy those older items now will pay considerably less than they would for comparable items that have just arrived at the jeweler’s.

From a gold seller’s perspective, now is a great time. And there are several reasons for that, said Jeffrey Bergstrand, a finance professor in the University of Notre Dame’s Mendoza College of Business.

First, in today’s growing global economy, there’s a strong demand for raw materials, including such precious metals as gold, he said.

Also, he said, gold is seen as a hedge against inflation. That means that as paper money loses value, “real” assets, including gold, are seen as good places to store value.

Finally, he said, in times of global uncertainty and political instability, people see gold as a “safe haven.”

All these factors have made gold an increasingly desirable commodity, Bergstrand said: “It’s related to the real-world economy and its activities.”

These global developments have ripple effects right here in Michiana, where customers bearing gold trinkets are beating a path to pawn shops.

In the last year, gold prices have risen by about 46 percent, said Steve Krupnik, president of Red’s Pawn Shop in South Bend.

“The biggest effect we have is we can loan our customers considerably more money on their gold jewelry,” he said. “I’m seeing more foot traffic, I’m seeing more phone calls, and I’m seeing more e-mails.”

A recent customer sold his wedding band from a previous marriage for $82, Krupnik said. Just six months ago, the same band would’ve fetched only about $50, he said, adding that the price appreciation is a “huge plus” for customers.

Like Krupnik, Alan Nunemaker, owner of Nunemaker’s Coin Shop LLC in South Bend, sees more customers these days.

“This past year has been a blur — just extremely busy,” he said. “I have (seen) all walks of life.”

In any given day, that means 15 to 30 people drop by his shop, he says, and 30 to 40 call him.

But while it’s clear that now is a fantastic time for those selling gold, what’s less obvious is that it’s also a good time for savvy jewelry buyers.

That’s because places like Van Horne Jewelers in South Bend, and J.R. Fox Jewelers in South Bend and Mishawaka, haven’t re-priced many gold items they bought when the precious metal was cheaper.

If this seems implausible, consider the motivation jewelers have to compete.

“We try to sell what we have based on the fact that it is a good deal,” said Bill Martin, manager of Van Horne Jewelers. “If someone’s looking for a (gold) piece, now would be a better time to bargain-shop.”

Doug Fox, owner and manager of J.R. Fox Jewelers, agrees.

“We’d rather just move it if it’s old,” he said, adding that it’s vital to stay “price-competitive.”

Just how good a bargain can a customer find? Martin said that a certain 14-karat, plain gold band his store acquired in October 2004 is available for $230. But if the store had gotten that same item today, a customer would shell out $345 for it.



Topics: Mendoza