PERSONAL FINANCE
Investors turning to tangible assets
By Craig Torres
Bloomberg News Service
WASHINGTON — Falling stock prices, investigations of corporate deceit and money-market funds whose yields barely keep up with the rate of inflation have pushed investors to real estate and precious metals as a shelter for their cash.
Tangible assets such as homes may become even more attractive to U.S. investors, who last week saw the Standard & Poor's 500 index drop to its lowest level since 1997.
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.
More Americans are seeking the comfort of precious metals as well. Last 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.
"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."
Gold for August delivery rose June 4 to $328.80 an ounce, the highest closing price for the metal since October 1997 when 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.
Few analysts expect gold, trading at more than $310 since mid- May, to exceed $400 an ounce this year. In New York, gold recently traded at $318. Sales of jewelry, the largest consumer, have declined. And central banks, which hold about one-fourth of above-ground reserves, continue to sell.
In the United States, homes continue to trump gold and other precious metals as the investment of choice for those interested in tangible assets.
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.
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.
