TORONTO - Consumers can expect to pay more for gold jewelry in the coming months, with the price of the precious metal on track to break US$2,000 per ounce, experts say.
Gold closed up $10.70 to US$1,612.20 an ounce Monday after earlier soaring as high as US$1,624.30. Several experts say gold bullion could reach the milestone of US$2,000 per ounce as early as next year.
"It means higher prices for any kind of a jewellery product," said John Kurgan, senior market strategist at Lind-Waldock, a commodities specialist firm.
The value of gold is often seen as a barometer for confidence in the world economy, and has long been a favourite of investors seeking to minimize risk. As investors grow jittery, they buy gold, which is seen as more secure than cash or other investments. That drives up the price of the precious metal, which has nearly doubled in the past three years, from $880 per ounce back in early 2009.
Credit rater Moody's downgraded Greece's bond ratings by a further three notches Monday, and warned it is almost inevitable that country will be considered to be in default following last week's new bailout package.
And with United States politicians struggling to raise the country's debt ceiling by the Aug. 2 deadline, investors are flocking to the security of gold.
"There's becoming a lack of confidence in those two major currencies, the U.S. (dollar) and euro currency," said Kurgan.
"People have been using gold as a store of value, and they've been diversifying out of some of those currencies into gold just as a safe haven of sorts and that's really what's been pressing (the price of gold) of late."
On the flip side, the higher price is sending regular consumers into a gold selling frenzy at one Toronto store that buys back gold.
A steady stream of customers flowed into Oliver Jewellery, even as the temperature outdoors felt like a steamy 45 C with humidity. Customers came in one by one with gold bracelets, rings and necklaces, hoping to get a premium on their items.
"Because the price of gold is so high, (business) keeps going up and up and up, People are coming in more," said store owner Russell Oliver, known for starring in kitschy TV commercials in which he plays cowboy "Loan Arranger" and superhero "Cashman."
When asked whether people have simply run out of gold to sell, Oliver said it's mainly new immigrants who drive his business.
While established Canadians may have already cleaned out their drawers, Oliver said new arrivals from countries like Somalia often have "buckets full" of gold, since paper money is often viewed as worthless in more politically unstable countries.
"We sit here everyday saying that: When is it going to stop? Like a tap, they keep coming."
It was a different scene up the street at Bijoux Village, which specializes in selling gold. Owner Gary Bensimon and one employee waited for customers, but foot traffic was much lower.
Bensimon said the retail business for gold has been soft since it hit $1,000 per ounce.
"When the prices are jumping every day, we have to keep it at a stock level, and when we go to replace our stock, and it costs more, we have to adjust our pricing otherwise we're losing money so it's hard for us to operate a business in that environment," he said.
"(Cash for gold stores have) got a lot of press time and a lot of people have stepped into the market setting up businesses and advertising that they buy gold, so its an extremely hot business to get into right now."
Bensimon, who has been in the jewelry business for 24 years, said he predicts new metals will begin replacing gold in fine jewelry as that metal grows to unaffordable heights.
Higher gold prices allow investors to cash in on the rising value of the physical gold they buy -- usually from banks or commodities dealers. Some investors also like to put their money into gold miners, although share prices of such companies do not always follow in lockstep with bullion prices.
Gold funds and other investments tied to the gold price are also good bets.
Nick Barisheff, who runs gold, silver and platinum fund Bullion Management Group Inc., said gold is a safe investment to delve into now, as governments devalue their currency by printing more paper money to pay off debt.
"The starting point for ordinary investors, just from a diversification point of view, they need 10 per cent of their portfolio in bullion," he said, adding interest in the fund he manages and the gold bars he sells is increasing, albeit slowly. He said it's taking time for investors to warm to the idea of gold as a sound investment.
"Bullion has outperformed every other asset class and the vast majority of retail investors to institutions haven't yet allocated anything to it," he said from his office in Markham, Ont.
But Craig Wright, the chief economist at Royal Bank, said the bank predicts gold fever will cool down once countries that appear in trouble succeed in managing their debts long term.
"Going forward, our hope and our forecast is that some of the things currently scaring markets and supporting gold prices should ease and we should see lower gold prices as we move ahead," he said in an interview.
"We should see less bad news, and that should suggest that if we're not at highs in gold we're probably pretty close to it," he said, adding European policy makers appear to be more proactive than reactive, and the ultimate outcome will depend on U.S. negotiations over increasing its debt ceiling.
