Precious Metals and Jewelry are Alternative Long-Term Investments

No one is going to become an instant millionaire by investing in jewelry or precious metals.
No one is going to go broke, either.
If gold and diamonds offer anything outside of pure luster, it’s a safe haven for investors who want to diversify their portfolios. The commodities retain and usually appreciate in value, especially during the most troubling times.
But the key is digging in for the long term.
“Buy it and hold it,” said Grant Marylander, vice president of business affairs for Goldline International Inc., a precious metals firm in Santa Monica, Calif. “Don’t rush to sell it the moment it goes up. You are buying for a reason. It is protection for your other investments.”
It may be a novel idea in Northwest Arkansas the price of gold has more than doubled from $291 in 2001 to more than $600 per ounce as of Oct. 31.
The Business Journal was only able to find one broker willing to talk about investing in jewelry and precious metals. That branch manager said when an investor comes into the office interested in gold or something similar, he steers them toward commodities that could offer quicker returns, such as energy or grains.
Craig Underwood of Underwood’s Fine Jewelers in Fayetteville said a “lion’s share” of his personal and business portfolio is, obviously, in jewelry and precious metals.
“It’s one of the best investments as far as the value,” Underwood said. “Unlike automobiles or furniture that tend to depreciate over time, jewelry, diamonds, platinum and gold almost always appreciates.”
And it’s definitely appreciated by those who wear it. Hoyt Perry, the owner of Perry’s Jewelry & Fine Gifts stores in Fayetteville and Rogers, calls it an investment in love.
“It’s also a good fallback investment,” Perry said. “If you don’t mind sitting on that diamond or some gold for 10 years, you may make 20 percent or more on it.
“But you’re probably going to lose money or not make any money if you try to sell it too quickly,” he said.
Multiple attempts were made to contact a local investor, but the names are guarded as well as the precious metals or jewelry they possess.
With cat burglars ready to pounce on any tip of a quick fortune, investors are leery of publicity.
But every thief doesn’t climb in through a window or have to break into a safe.
In Ohio, the state invested $50 million in rare coins only to have Tom Noe, who managed the funds for the state, allegedly steal at least $2 million from the funds. He has pleaded not guilty to theft, money laundering, forgery and corruption charges.
The trial is currently under way in Toledo, Ohio, and is expected to
wrap up in November.
Strictly Gold
Physical gold can be acquired in many different forms, such as 24-karat gold bars, nuggets, or the rice-size “grains” that are alloyed into jewelry. There also is gold in paper form such as what is bought as stock.
The word “karat” is used when measuring gold and “carat” is used for gemstones, especially diamonds. A carat is about 200 milligrams. A karat is usually the unit of purity, with 24k being pure gold; 18k is 18 parts gold and 6 parts “other” metals.
Goldline International is located on swanky Wilshire Blvd., and attracts Hollywood socialites like the original gold rush did miners in the mid-1800s. The firm directs its customers toward investing in gold coins, since they are the easiest to transport and identify and the hardest to counterfeit (bars can be silver covered by gold or even hollowed out).
“Every one should consider having precious metals as part of their portfolio, but it should be balanced, maybe 5 to 20 percent,” Marylander said. “We don’t tell people to buy gold because you are going to double your profit in a year. You buy it because it has good protection against inflation and it’s protection against the devaluing dollar,” he said.
The U.S. dollar index has dropped 30 percent since 2002.
Now, it’s obvious Goldline’s purpose is to sell gold. But gold does have a history as rich as its owners.
For example, a $3,600 investment in gold in 1970 would be worth $60,000 today. That was when gold was trading for $36 per ounce on the New York Stock Exchange.
Conversely, buying 100 ounces of gold in 1980 would have cost $61,200, meaning that a loss would be incurred if that same investor sold the gold at today’s prices.
Saving Money
There are some in Northwest Arkansas who have used local jewelers for investments, beyond those items purchased for special events such as engagements, weddings or championships.
David Adams of David Adams Fine Jewelry has seen a handful of investors come through his store on the downtown Fayetteville square, but most buy “emotional investments” to commemorate a special event or milestone.
About 10 years ago, he had one wise customer order five handmade rings for his granddaughters, who ranged in age from 1- to 5-years-old at the time.
Adams designed the rings almost identical, with different birthstones in the middle and diamonds around the outside.
“He put them in a safety deposit box and when these kids turn 18 years of age, they will all start to receive one,” Adams said.
Adams said the customer saved money two ways.
“Just putting them away today was very smart,” Adams said. “Because what it cost him then to have them made, he knew that it would have cost him more at a later date to have them built.
“Plus, if he were to commission me to do it one ring at a time, it would have cost more, too. When I go to hand-make four others the same, they go a little quicker than the first one, so that saved some money on the labor.”
Adams, who has had a store in Fayetteville since 1999, said he occasionally has had investors come by speculate on large parcels of jewelry, gemstones and precious metals. However, few sales have resulted from such endeavors.
“The only way they are really going to make a profit off of it very quickly is to put it into a finished product (like jewelry) and sell it,” Adams said. “That’s going to be more on the short term.”
All That Glitters
Brittany Adair and her father, Patric Brosh, are the co-owners of Romance Diamond Co. They brought the family business from Newport, where it began in 1944, to Fayetteville about 11 years ago.
If a customer were looking for a monetary investment, they would point to rare gems or diamonds, like those in the hard-to-find colors red or green.
For instance, Brosh had a fraternity brother who was with him at the University of Arkansas from 1966-69 who recently purchased a rare black diamond that was more than 60 carats.
Brosh’s buddy bought it for a “couple of hundred thousand” and now hopes to sell it for $1.5 million after keeping it for 10-plus years.
“Colored diamonds are a hot market right now,” Brosh said. “You want to have something that no one else has.”
The same can be said for jewelry, something else Brosh says can be profitable. If it is a unique piece, such as an antique that can’t be reproduced, the return can be favorable.
Brosh and Adair may show a potential investor one of their high-end pieces such as the Ceylon sapphire and diamond necklace that lists for $200,000 in their showroom.
But for jewels only, it is important to have it appraised by a professional for its authenticity while also making sure that it is truly rare.
Brosh says the best investment, whether in a gem or a piece of jewelry, is in the “collection colors,” which are colorless and internally flawless.
“If it’s a bad clarity, it obviously won’t be worth as much,” Brosh said.
“Buy the collection colors in the very, very best quality. Then just wear it and enjoy it and one of these days you can pass it on and you are passing something on of great value.”
Gold Mine
Perry isn’t sure about investing in gems because they are “so hard to sell,” although he did say the wholesale diamond market has been skyrocketing. He says finding a buyer for a specific stone can be difficult, and auctions are unpredictable.
If customers were to come to him searching for a pure investment (outside of the “investment in love” he calls his jewelry), he may point them to something that might profit sooner.
“Look at the mining companies because right now, those guys are doing pretty good,” said Perry, whose grandfather, Yout James Perry, started the business in 1948. “So you stand to make a higher return in that company by buying its stock rather than buying actual gold.”
While the price of gold can fluctuate (it actually cost more in 1980 than now), most mining companies continue to show gains while moving independently from the rest of the metals market.
“If you are just investing in gold bullion, you are at the market’s whim,” Perry said. “Gold is around $600 and it could drop to $500 in a couple of weeks or jump up to $800. There’s no true way of being able to tell.
“So you could be losing $100 per ounce.”
Or, making $100 per ounce, which equates to $10,000 with 100 shares, as the market rises.
As far as mining stocks, experts say the absolute best time to buy is just prior to the drilling of a “discovery” hole, which are few and far between.
Another smart time to invest in mining stocks is when a qualified management team is preparing to convert a single ore mining company into a producing mine.
Volatile Times
Stock markets crash. Interest rates are unpredictable.
Like most stocks, gold prices rise or fall every day.
However, gold has steadily been on the upswing lately and some market analysts such as Steve Sjuggerud of Investmentu.com are predicting values of physical gold and silver assets will climb even higher over the next several years.
Strangely, uncertainty in the world seems to drive up gold prices.
War in Iraq and post 9/11 terrorist threats has pushed gold to the highest level it has been since 1980, when similar threats created a world-wide scare.
“We worry about North Korea and we worry about Iran and Iraq,” Marylander said. “It’s that uncertainty that we feel in every day life that moves gold higher and higher because you know when you’ve invested in gold, you’re always going to have that as an asset … No matter what happens.”
Underwood, whose father, Bill Underwood, started the business in 1957, occasionally sees investors who come in wanting to buy one-ounce gold coins or parcels of jewelry. Most of that business came around the turn of the century when “Y2K” fears were high, though.
“We did see a good amount of interest in it back then,” Underwood said. “People were concerned in those days of a huge blackout with computers and everything society-wise was going to blackout and people were afraid of losing track of investments they had with financial institutions.”
But gold will always be, well, gold.