Economic Fallout: Expert Predicts Future for Gold Prices, Loans

2:51 PM, Aug 9, 2011   |    comments
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BUFFALO, N.Y. - It's a great time to sell gold, but buyers should be very careful.

That's the opinion of Amherst financial manager Tony Ogorek, who warns we are in the midst of a gold bubble.

"The only reason people are buying gold right now is it's going up," Ogorek said. "And when everyone decides the prospects for it going up are not good, they're going to be selling. Classically, that's what we call a bubble."

There may be no better indication of the gold boom than at Airport Plaza Jewelers in Cheektowaga. Owner Don Hoffman can't help but smile.

REPORTER: Is it a good time to be in the gold-buying business?

HOFFMAN: I wouldn't want to change occupations right now.

Customers are racing to Hoffman's kiosk to trade in their old jewelry for scrap.

"The nice part is, if you bought your gold chain 10 years ago, and you scrap it out today, you can almost get what you paid for it 10 years ago in retail, in scrap," Hoffman said.

While it seems like a great time to sell, Ogorek says investors should tread carefully.

"Traditionally, if you're holding gold, we suggest that it amount to about three to five percent of your portfolio," he said.

Ogorek demonstrated with a scale for us. Right now, gold is trading at $1,700 dollars per ounce. That's as light as 21 of his business cards. And the price has climbed on average 23% annually for the last four years.

Ogorek says gold is showing the classic signs of a bubble.

"When you look at stocks, when you look at the value that's out there, these are companies that really make profits," he added. "Gold makes no profit. It's only what someone else is willing to pay for it."

The spike in gold comes as investor concern grows over the downgrading of the U.S. credit rating. Some have wondered whether such a drop will affect the average consumer's ability to find a loan at a low rate.

Ogorek says, right now, there is nothing to indicate that rates will significantly climb.

REPORTER: Is there any need for us to run out and go get a loan now if we were thinking about maybe doing it later this year or next year?

OGOREK: There seems to be a pervasive expectation that rates are going up. And if yo look at the financial markets, we have financial futures which gives us a sense of where the market is betting rates are going to be. And what I can tell you is, the futures are telling us that the short-term rates are not going to be going up until probably June of 2013. That is two years off. Not two weeks off or two months off. So, I would put the kibosh on people who feel they are missing the deal of the century.

However, if the other two agencies that rate the country's credit worthiness -- Moody's and Fitch -- also decide to downgrade our ratings, Ogorek says rates could start to tick up.

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