- WASHINGTON (Bloomberg) --
Falling stock prices, investigations of corporate deceit, and money-market
funds that yield little more than inflation have pushed investors to real
estate and precious metals as a shelter for their cash.
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- U.S. homebuyers are increasing down payments as a share
of property values, and consumers are becoming reacquainted with gold pieces
such as American Eagles and Krugerrands. Bullion has won converts among
younger Japanese investors, even as the government is trying to entice
them into bonds with ads by a movie star.
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- Tangible assets such as homes may become even more attractive
to U.S. investors, who this week saw the Standard & Poor's 500 Index
drop to its lowest level since 1997. Bristol-Myers Squibb Co. joined the
list of companies, including WorldCom Inc. and Adelphia Communications
Corp., whose financial and accounting practices are under federal scrutiny.
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- "I want to be able to understand where my money
is,'' says Martha Kumar, a political science professor at Towson University
in Towson, Maryland, who recently made a down payment worth 36 percent
of the value of her new home in Washington, D.C. ``In real estate, you
can see that.''
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- Median down payments for repeat home buyers are up to
an average of 25 percent of U.S. home values, compared with 19 percent
in 1999, according to the National Association of Realtors, a Washington-based
trade group.
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- More Americans are seeking the comfort of precious metals
as well. This week, a banker bought 1,524 one-ounce American Gold Eagle
coins, worth about $500,000, says Michael Kramer, head trader at Manfra
Tordella & Brookes Inc., a metals dealer in New York.
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- First Profit in Years
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- "One guy is buying 200 to 300 ounces of gold a week,''
Kramer says. Many people started picking up bullion at below $300 per ounce
earlier this year, he says, so "it is the first time in years that
somebody has been able to have a profit.''
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- At FH Coins & Collectibles, a dusty, standing-room-only
shop crammed with old porcelain and crystal as well as coins on New York's
Upper East Side, owner David Heller says people are calling up or walking
in off the street three out of five days a week and asking how to buy gold.
Usually, he sells them American Eagle, Canada Maple Leaf, or South African
Krugerrand coins.
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- "A year ago, you couldn't give it away,'' he says.
Gold, which doesn't pay dividends, was trading below $300 an ounce and
"you couldn't interest anybody in buying.''
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- Demand at his shop now is almost as strong as it was
in 1999, when investors hoarded gold on fears that the arrival of Jan.
1, 2000 would cause computers to malfunction and throw business into chaos.
"With everything going on in the economy, people want something substantial,''
he says.
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- Gold Highest Since 1997
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- Gold for August delivery rose June 4 to $328.80 an ounce,
the highest closing price for the metal since October 1997. Back then,
stocks had tumbled in reaction to a slump in Asian economies. Last month,
investors were concerned that India and Pakistan were going to war. A year
ago, gold fetched $266.
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- Few analysts expect gold, trading at more than $310 since
mid- May, to exceed $400 an ounce this year. Sales of jewelry, the largest
consumer, have declined. And central banks, which hold about one-fourth
of above-ground reserves, continue to sell.
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- The gold market, "has an 800-pound gorilla in it
and that is the world central banks,'' says Joseph Haubrich, an economist
at the Fed Bank of Cleveland. Holdings have declined from an estimated
45.8 percent of total government reserves in 1985 to an estimated 12.2
percent in 2001.
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- Japan: `The Longest Streak'
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- The recent price gains are attracting investors in Japan
who have few other investment options. Bank deposits yield 0.01 percent,
and land prices are down 75 percent since 1991. An additional blow came
in May when Moody's Investors Service lowered the government bond rating
to below Botswana's. The government has hired movie star Norika Fujiwara
to market the securities.
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- "People just don't have any place to put their money,''
says Hitoshi Kosai, general manager at the precious metals division of
Tanaka Kikinzoku Kogyo, the country's largest bullion dealer. Japanese
started buying bullion after Sept. 11, and haven't stopped, Kosai said.
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- "This is the longest streak for a gold boom in Japan,''
he says. "Usually, they end after a month.''
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- Japanese investments in gold bullion and coins rose to
47.5 tons, or about $487 million, in the first quarter, almost a fourfold
increase from a year earlier, says the World Gold Council, a Geneva-based
trade group.
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- In the U.S., homes continue to trump gold and other precious
metals as the investment of choice for those diversifying into tangible
assets.
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- Record U.S. Home Sales
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- U.S. home buyers are being helped by low borrowing costs,
with rates averaging less than 7 percent on conventional, 30-year mortgages
since the start of 2001, compared with more than 8 percent in 2000. Home
sales will probably set a record this year, says Fannie Mae, the largest
buyer of U.S. home mortgages.
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- Typically, homes and precious metals are snapped up in
inflationary times because they hold their value. Indeed, gold reached
a high of $834 an ounce in January 1980 after a year in which U.S. consumer
prices rose 13.3 percent. By comparison, U.S. consumer prices were up 1.2
percent in May from a year earlier. Low inflation is also a reason why
U.S. Treasury securities remain a popular haven for cash.
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- Gold-stock funds in the U.S. received $760 million in
new cash in the first five months of the year, representing a 39.4 percent
rise over year-end asset levels for those funds, according to Lipper Inc.,
a mutual fund analysis firm.
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- Demand for gold bullion and coins in the U.S. was 2.8
tons, or approximately $28.7 million, in the first quarter, according to
the World Gold Council, a rise of 13 percent over the first quarter of
2001.
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