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Terrorist Attacks Drive Investors to Safety of Gold, Treasury Bonds

By Bobby White
Capital News Service
Monday, Sept. 17, 2001

ANNAPOLIS - Maryland gold dealers have been swamped with orders to buy
gold coins and bars by nervous investors reacting to fears of a U.S. economic downturn as a result of last week's terrorist acts.

"I have seen a dramatic increase over the past two days of people buying gold and silver," said Bob Carlson, manager of Gaithersburg Coin Exchange. "People who don't even know what gold is all about have come in." 

Investors are scared and looking for a place to "park their money," Carlson said.

The worth of gold has increased from Sept. 7 by $15, with an ounce now selling for $280. While the increase is not dramatic, it is substantial considering gold is a conservative asset, Carlson said.

Since 1990, the price of gold has been in a slow but steady decline, with jagged upswings during the Persian Gulf war, said Jim Schaeffer, who operates Golden Eagle Coin Exchange in Laurel.

A month ago, the price was $250 an ounce. Over the years, gold has been marginalized, with progress being the chief culprit. Technology now allows for a more open, flexible world economic system. Investors can easily own assets in many countries and not have to rely on gold to store their wealth.

Before Tuesday, Schaeffer said he'd sell a customer maybe one or two ounces.
Since then, "people have been coming in and asking for five, six or even seven ounces of gold," said Schaeffer, who has been in the market for 18 years.

U.S. Treasury Bonds also are in high demand in the wake of the twin terrorist attacks on the Pentagon in Washington and the World Trade Center in New York.

"People want that security," said Peter Locke, George Washington University finance professor.

The flow of funds from riskier to safer investments is called "flight to quality," Locke said, and it historically occurs in times of crises.

Investors usually opt for bonds because they pay interest annually, whereas gold does not. People also decide on bonds because they are considered a safe investment with a respectable return.

The attraction to gold is its high liquidity. "If it all went to hell, gold is something you can trade," said Locke.

The bond market re-opened Thursday after shutting down following Tuesday's attacks. A number of investors plunked their money into short-term government bonds. The decision drove bond interest rates down to 3 percent.

Gold dealers predict the price of gold may climb higher because of the uncertainties surrounding the nation's economy.

"Whenever there is a weak dollar, the price of gold remains strong," said Michael Merrill, who sells coins in Timonium, Md., and has recently seen
brisk sales. "We have a while to go" before the U.S. economy gets itself together.

Merrill said in the early 1980s when inflation was as high as 12 percent, gold was selling for $850 an ounce. During the stock market crash of 1987, people grabbed what was left of their money and temporarily parked it in gold.

The success of the stock market the past few years has meant the focus on gold had somewhat subsided, said Merrill. "I wish it was [because of] better circumstances people were revisiting it."

 

Copyright 2001 University of Maryland College of Journalism


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