NEW YORK — If you thought the Brexit vote was scary, check out the full page newspaper ad that recently appeared in The New York Times recounting all the horrors in the present tense, as if they were still unfolding: The vote “topples” the British government, “crushes” the pound and “wipes away” billions in stock market wealth.
Then came the purpose behind all the panicky prose.
“Buy Gold Now!”
Investors have done just that, pushing up the price of the metal to a two-year high. But before joining the rush, experts warn, beware that assets marketed as conservative and safe bought in a panic can sometimes wallop investors with losses they were trying to avoid.
The ad was from a company selling gold coins that is run by is Philip Diehl, a coin expert with an impressive pedigree. He was the staff director of the Senate Finance committee, chief of staff at the Treasury Department, then head of the U.S. Mint, the government agency that stamps out dimes and quarters and other coins.
The company he heads, U.S. Money Reserve, may sound like U.S. Mint, but it is an unrelated, private company, as readers can see in the fine print at the bottom of the ad.
“Phones have been ringing off the hook,” said Diehl of the reaction to Brexit. Gold is “a way of protecting wealth. It’s like auto insurance or house insurance.”
Barbara Roper, a director of investor protection for the Consumer Federation of America, has no opinion on gold itself, but urges caution. She notes that investments sold as “safe” to investors are often anything but.
A quarter of a century ago, money poured into “world income funds” that bet on seemingly conservative short-term government debt. A decade ago, investors clamored for “auction rate securities” because they were told they were just as secure as cash in the bank. And after the 2008 financial crisis, index annuities were pitched as a way of betting on stock indexes with no risk of loss, a big draw after the U.S. market had lost half its value in a little over a year.
All these seemingly safe products slammed investors with high fees or kept them from accessing their money or socked them with outright losses.
“Fear is a good thing,” said Roper. “Fear mongering is not.”
Gold is not some newfangled financial product, of course. It has been a trusted storehouse of wealth and means of exchange for centuries, but lately it’s been jumping around like a risky biotechnology stock. It soared during the financial crisis, fell in the four years through the end of last year, then began climbing sharply in recent months.
On Monday, gold hit $1,366 an ounce, up 28 percent since the start of the year.
Diehl thinks it will continue to rise because of all the turmoil in the world.
He’s worried about a “hard landing” in China in which the world’s second biggest economy slows further, taking many countries down with it. He’s worried about another financial collapse like in the 2008 financial crisis. And he’s worried politicians in the U.S. will be too gripped by fear of high public debt, and the ones in Europe too wedded to “austerity” policies, to vote for a burst of public spending to jolt their economies back to life should things fall apart again.
Investors seem to agree. In the five trading days after the Brexit vote, $2.7 billion rushed into gold funds, according to EPFR, a research firm. That is more than 10 times the typical weekly investment in the last bull market for gold in 2011.
The total $121 billion in gold funds is less than 1 percent of the money in stock funds, but it is rising fast — up 60 percent in just a year.