A burning question for gold aficionados is whether the inflated price of gold constitutes a "bubble" similar to the real-estate market's bubble. And, if so, when will that bubble burst?

Despite the fact that the dollar price of gold never has been higher, some gold sellers and so-called experts predict it will keep rising — to double or even triple its current value. Peter Schiff, an economist who warned the public in 2006 of the then-looming recession, predicted this month that gold would be selling for $5,000 or $10,000 an ounce within five to 10 years. He suggests buying gold bullion, like American Eagle coins, and stock in gold-mining operations.

In fact, the price of gold is not as high as it's ever been, when adjusted for inflation. Experts estimate the real price of gold during the high of 1980 was $1,500 to $2,000, maybe more, measured in today's dollars.

Gold prices reached a record high of $1,266 per troy ounce last month.
Gold prices reached a record high of $1,266 per troy ounce last month.
Jim Clark
Jim Clark

Judging by sales of the American Eagle, as tallied by the U.S. Mint, the public's demand for gold is nearly as high as it was in 1986, when the price was much lower. Gold advocates claim that mainstream America hasn't yet caught on to the buying trend, and that it's possible even more people will jump on the gilded bandwagon.

The people often making these claims, gold dealers, plan to make money coming and going: When the market is hot and the price is high, they will make money by selling at a premium over the "spot price," the dollar amount assigned to gold at any given time.

When the market falls and people are desperate to sell before it dives even lower, dealers will rake in cash by buying metals back at less than the spot price.

If you want to buy gold as an investment, you can't do it through the U.S. Mint, which produces the most popular form of bullion, the one-ounce American Eagle. (If you have the cash, you can also buy Fort Knox-style bricks — but, again, not directly from the Mint).

When the Mint began its Eagle-selling program in 1986, officials decided not to set up shop as a government-run retail business, says the Mint's spokesman, Michael White. Instead, bullion is sold to just eight companies in the world, which then re-sell it to retail outlets.

The Mint does sell specially made, blemish-free "proof" coins, such as the American Buffalo, but with a high mark-up. A one-ounce Buffalo proof, for example, in late June was selling for $1,510, about $150 more than gold's spot price.

"We don't sell [proof coins] as an investment," White says. "We say it's a collector's version."

One of the eight companies in the world authorized to buy gold bullion from the U.S. Mint is an outfit in Bridgewater, Massachusetts, called Coins N Things. Though the company still does business with the mom-and-pop-shop name it started with in 1974, it convinced the Mint in January that it was one of the big boys. To join the Mint's exclusive club — which allows the eight companies to buy bullion at a lower wholesale rate than anyone else — Coins N Things had to prove it was capable of handling a huge amount of trade, Paul Thompson, the company's vice president, tells New Times.

Now the firm supplies many of the retail shops in the United States, Canada, Great Britain, and Germany. To avoid competing with its own customers, the shops, Coins N Things doesn't sell directly to the public.

What all this means is that would-be gold buyers have to deal with the retail outlets, which may sell the products for a reasonable premium over gold's spot price — or not.

"We certainly can't dictate to our customers what they sell it for," Thompson says. "However, it is such a competitive market . . . making two or three calls to different people, you should be able to avoid overpaying."

Perhaps the biggest pitfall for would-be buyers is getting talked into buying numismatic (a.k.a. collectible) coins, which are sold at a much higher premium than bullion.

Unscrupulous salespeople shooting for higher commissions often try to steer buyers toward collectibles with fear-based pitches — such as that smaller units of gold (coins like the Swiss 20 franc, for example) will be easier to barter in a post-Apocalyptic world. Another claim is that numismatic coins might be exempt from government confiscation, as they were in 1933 when President Franklin D. Roosevelt banned private ownership of gold bullion.

The Web sites of many gold dealers stress the "privacy" of collectible coin purchases. This is a not-so-sly hint that customers do not have to provide a Social Security number upon selling the coins, but they do upon selling bullion because of the capital-gains tax.

A quick look at Better Business Bureau ratings is always recommended. Monex, for instance, a national boiler-room, gold-selling operation, gets an "F" grade from the BBB.

Many companies, however, are trustworthy. The BBB gives local dealer Richard Smith and his 31-year-old company, Coin and Stamp Gallery at 4216 West Dunlap in Phoenix, an A-plus rating.

Smith met with New Times in a small office at the shop on a recent evening, after the day's business had died down. An off-duty Phoenix cop leaned against a wall next to one of the display counters containing gold and silver coins, eyeing potential customers warily. Coin Gallery's minimum order for gold bullion purchases is 10 ounces — costing more than $12,000 by June's prices.

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