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Gold bugs find the shine in precious metal

Dan Tapiero, co-founder of GBI, a company that buys and sells gold, stands inside a vault in mid-town Manhattan.

When you think vault filled with gold, you might imagine Fort Knox or maybe Gringott's Wizarding bank from Harry Potter -- dark and mysterious with elaborate locks. The reality is a lot less glamorous.

My gold vault journey started in a rather plain office in a rather plain building in midtown Manhattan. I had to hand over my wallet, jacket, cell phone, and my recording equipment -- so you'll just have to take my word for what happened next.

An elevator took us down to a sub-basement room. The vault itself was basically a cement box the size of a single car garage. Think florescent lights, sheet-rock walls, and gray metal shelves. On some, bags of gold coins; On others, single layers of gold bars the size of an iPhone.

There was about $4 billion worth of gold around us, but it would all have fit in the back of any old SUV. Somehow it was all a bit underwhelming, until I picked one up. That's something. Dan Tapiero owns a gold investment company that stores some gold here. He felt it, too.

"The first thing I was taken with was, wow, this is kind of cool. I didn't realize it was this shiny, this heavy," he said. "I get it, meaning I get why it's been a powerful store of value for 5,000 years. Because it's something that's rare, something that looks great, some thing that protects your savings."

Protecting savings was on Tapiero's mind after the 2008 global financial meltdown.

"I thought, OK, what can I own that's not reliant upon this commercial banking system? And what can be held outside the system and what can I do in enough size that it matters to me?" he asked.

Tapiero's answer: gold. He could have bought gold futures or stock in a mining company, but he wanted more than just a number flashing on a screen. He wanted the real thing. Tapiero's been a hedge fund manager for 20 years, so he knows people who know gold.

"And I said hey, I'd like to buy a certain amount of physical gold. Can you do it for me? And my saleswoman says, well, you know Dan, our limit is $20 million," he said.

That's a $20 million minimum. Even for a hedge fund guy that was a lot to spend. So he decided he'd create a company that would sell physical gold to the little guy.

Well, not that little. Gold Bullion International's clients have a net worth anywhere from a couple hundred thousand to $25 million. And Tapiero got in the market at a great time. Since GBI started in 2009, gold's gone from about $900 an ounce to a $1,900 an ounce high last summer. He says there's huge demand from emerging markets like China and India.

"There's been a wealth transfer from Europe to the emerging world, which is what you think would happen given the European crisis," he said.  

Tapiero believes gold could go as high as $2,300 an ounce. Lisa Shalett, chief investment officer at Merrill Lynch's Wealth Management Group, says right now people are worried about inflation, which drives down the value of currencies. That makes gold like an insurance policy.

"So when the market believes inflation is going to go up in the future, the price of gold tends to go up. Similarly, when they think that the value of the U.S. dollar is going to go down, the price of gold goes up," she said.

In other words, gold is a good hedge. But Shalett says investors shouldn't expect it to act like stocks or bonds.  

"Gold, like other precious metals, are somewhat unique in that they are kind of coveted for their store of wealth, but they actually don't create wealth," said Shalett. "It's simply the supply and demand for gold itself that kind of creates its own market."
 
Shalett says Merrill Lynch recommends clients who can afford it put 3 to 5 percent of their assets in the shiny stuff. Today, Dan Tapiero has 25 percent of his own net worth in gold. At that rate, you could mistake him for a gold bug -- one of those people hoarding gold coins and canned food in case of the apocalypse. That's not how he sees it.

"It'll be good to have physical gold if everything happens except the end of the world," he said.  

In which case, it probably won't matter much if the vault is not quite as glamorous as the ones in the movies.

Tess Vigeland: Gold can certainly play a part in bulletproofing your portfolio, but it shouldn't be the end-all-be-all. That said -- there are plenty of so-called gold bugs out there, hoarding sizeable chunks of the precious metal. Actual gold, not just gold-related funds. New York Times Wealth Matters columnist Paul Sullivan has the story.


Paul Sullivan: When you think vault filled with gold, you might imagine Fort Knox or maybe Gringott's Wizarding bank from "Harry Potter." Dark and mysterious with elaborate locks. The reality is a lot less glamorous. My gold vault journey started in a rather plain office in a rather plain building in mid-town Manhattan.

Worker: Good morning. What's your name?
Sullivan: P-a-u-l S-u-l-l-i-v-a-n.

I had to hand over my wallet, jacket, cell phone, and my recording equipment -- so you'll just have to take my word for what happened next. An elevator took us down to a sub-basement room. The vault itself was basically a cement box the size of a single car garage. Think: florescent lights, sheet-rock walls, and gray metal shelves. On some, bags of gold coins. On others, single layers of gold bars the size of an iPhone. There was about $4 billion worth of gold around us, but it would all have fit in the back of any old SUV. Somehow, it was all a bit underwhelming -- until I picked one of the bars up. That's something. Dan Tapiero felt it, too.

Dan Tapiero: The first thing I was taken with was, wow, this is kind of cool. I didn't realize it was this shiny, this heavy.

Tapiero owns a gold investment company that stores some gold here. I talked to him an unused vault on another floor.

Tapiero: I get it, meaning I get why it's been a powerful store of value for 5,000 years. Because it's something that's rare, something that looks great, some thing that protects your savings.

Protecting savings was on Tapiero's mind after the 2008 global financial meltdown.

Tapiero: I thought, OK, what can I own that's not reliant upon this commercial banking system? And what can be held outside the system and what can I do in enough size that it matters to me?

Tapiero's answer: gold. He could have bought gold futures or stock in a mining company, but he wanted more than just a number flashing on a screen. He wanted the real thing. Tapiero's been a hedge fund manager for 20 years, so he knows people who know gold.

Tapiero: And I said hey, I'd like to buy a certain amount of physical gold. Can you do it for me? And my saleswoman says, well, you know Dan, our limit is $20 million.

That's a $20 million minimum. Even for a hedge fund guy that was a lot to spend. So he decided he'd create a company that would sell physical gold to the little guy. Well, not that little. Gold Bullion International's clients have a net worth anywhere from a couple hundred thousand to $25 million. And Tapiero got in the market at a great time. Since GBI started in 2009, gold's gone from about $900 an ounce to a $1,900-an-ounce high last summer. He says there's huge demand from emerging markets like China and India.

Tapiero: There's been a wealth transfer from Europe to the emerging world, which is what you think would happen given the European crisis.

Tapiero believes gold could go as high as $2,300 an ounce.

Lisa Shalett is the chief investment officer at Merrill Lynch's Wealth Management Group, which works with GBI. She says right now, people are worried about inflation, which drives down the value of currencies. That makes gold like an insurance policy.

Lisa Shalett: So when the market believes inflation is going to go up in the future, the price of gold tends to go up. Similarly, when they think that the value of the U.S. dollar is going to go down, the price of gold goes up.

Gold's a good hedge, in other words. But Shalett says investors shouldn't expect it to act like stocks or bonds.

Shalett: Gold, like other precious metals, are somewhat unique in that they are kind of coveted for their store of wealth, but they actually don't create wealth, and it's simply the supply and demand for gold itself that kind of creates its own market.

Shalett says Merrill Lynch recommends clients who can afford it put 3-5 percent of their assets in the shiny stuff. Today, Dan Tapiero has 25 percent of his own net worth in gold. At that rate, you could mistake him for a gold bug -- one of those people hoarding gold coins and canned food in case of the apocalypse. That's not how he sees it.

Tapiero: It'll be good to have physical gold if everything happens except the end of the world.

In which case, it probably won't matter much if the vault is not quite as glamorous as the ones in the movies.

I'm Paul Sullivan for Marketplace.

About the author

Paul Sullivan is the Wealth Matters columnist for the New York Times.

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