Gold Rush -- As Year 2000 Looms, Some Rush To Buy - And Some Rush To Cheat

Hear ye, hear ye. The end of the world is coming.

Well, not quite.

But some are worried that when the clock strikes midnight Dec. 31, banks will shut down, the stock market will go haywire, paper currency will have no worth and the only way to buy toilet paper will be with gold coins.

Yes, gold.

Most gold investors don't really think any of this will happen, but are hedging their bets that Armageddon fears will boost gold prices toward the end of the year - when they can sell their precious metals for big profits.

"There are people who think they're going to buy their groceries with gold and silver," said Ross Hansen, director of Northwest Territorial Mint in Auburn, a precious metals dealer and maker of medallions and commemorative coins. "They might. Other people buy it as an investment. . . . It's a way to protect your wealth."

But gold so far hasn't turned out to be a very good investment, and the industry is full of scam artists ready to charge investors high premiums for gold coins and bars that far exceed the spot price of the precious metal.

"It's an extremely volatile investment," said Karen Ramsey, a Seattle-based financial planner. "Gold has wide swings. It's more volatile than most people can stand."

Historically, gold has been a stable investment during uncertain economic times. It's easily convertible and transportable, said Chuck Harwood, regional director of the Federal Trade Commission's Seattle office.

But, he noted that "precious metals have not appreciated very rapidly in recent years. Consumers who think they're going to make money in buying them might find that they in fact will not."

Gold, which sold for $834 an ounce on Jan. 21, 1980, now sells for about $261. The price dropped to a 20-year low earlier this month after Britain announced plans in May to sell 60 percent of its bullion reserves.

Ramsey, author of the book "Everything You Know About Money is Wrong," doesn't believe that the financial system will fail at the beginning of next year.

"I have more faith in our monetary system," she said. "I don't think you need to take the extreme position that the only thing valuable after Y2K is gold."

More than 97 percent of U.S. banks are already Y2K-compliant, said Ellen Lamb, spokeswoman for the Conference of State Bank Supervisors.

The likelihood of any disruptions is no more than might be caused by severe weather, she said.

"What people are worried about is two things: whether their money will be safe, whether they can access it. The answer to both those questions is, yes, it's safe. It's not going to get stolen. (You're) not going to be mugged.

"People who take their money out of the bank and convert to gold are taking it out of a safe institution," she said.

But, George Milling-Stanley, New York-based manager of gold-market analysis for the World Gold Council, headquartered in London, calls buying gold a "sensible insurance policy."

Kyle Rynning, a precious metals trader at Northwest Territorial Mint, recommends putting 10 to 20 percent of an investment portfolio in hard assets such as gold.

Dealers recommend investing in bullion coins, such as the American Eagle and the Canadian Maple Leaf, which are internationally recognized and sold for the value of metal contained in the coin. The Maple Leaf is pure 24 karat gold. A 22 karat, one-ounce American Eagle contains traces of copper and silver.

Bars are also one of the purest forms of gold, but because of their bulkiness and cost, they're not sold as frequently.

Northwest Territorial Mint sells one-tenth-of-an-ounce American Eagles for about $32, depending on the spot price. The coins are about the size of a dime. One-ounce coins, about the size of a half-dollar, sell for $281, about $20 over the spot price of gold. Collectible coins, such as uncirculated $20 liberty gold coins and uncirculated $10 Indian gold coins, are often priced much higher than their actual gold value.

Milling-Stanley doesn't recommend buying collectible coins as an investment.

"You don't buy those things for a return," Milling-Stanley said. ". . . If you're looking for investments, a good old-fashioned gold coin or bar is the better way."

Whatever the case, Milling-Stanley advises investing only in what you know. For some, gold mining stocks may be a good idea, he said. When it comes to buying actual precious metals, he said, take a reputable dealer over a better price somewhere else.

But, sometimes even reputable dealers aren't trustworthy.

Craig Rhyne, one of the most prominent and respected precious metals dealers in the Northwest, pleaded guilty to mail fraud in September 1996 and was sentenced to 33 months in prison. Rhyne was accused of taking money customers paid him to buy precious metals and using it for other purposes, such as to pay business expenses. Customers lost about $3.6 million in the scheme. Many lost their life savings.

In 1991, a Spokane precious-metals dealer, Steven Baldwin, pleaded guilty to mail fraud and was sentenced to five years in prison after telling investors he had purchased silver when there was no metal to back their purchases. He defrauded more than 100 investors of $1.25 million.

If you buy gold, officials at the Federal Trade Commission recommend that you take immediate possession of whatever you buy, rather than leave it in the care of a dealer.

They also warn consumers about deceptive marketing strategies.

Heather Hippsley, assistant director to the enforcement division at the FTC's Washington, D.C. headquarters, warns that the Y2K scare is "a ripe opportunity for scam artists to take advantage of consumers" and prey on people's fears.

Common tactics involve telemarketing schemes with promises to sell gold at below-market prices, Hippsley said.

Hippsley warned consumers to be wary of unsolicited calls, and never give your personal financial information to a stranger. Better to go to a local dealer you can go back to if you're not satisfied.

Pyramid schemes are also common. The Better Business Bureau of Dallas and North Texas reports receiving 27 complaints about Family of Eagles, a Cedar Hills, Texas-based company with a multilevel marketing program for selling gold coins. The complaints include misrepresentations of refund policies and nondisclosure of markups.

Tamra Fitzpatrick's phone message number is 206-464-8981. Her e-mail address is tfitzpatrick@seattletimes.com

------------------------------ Thinking of investing in gold? ------------------------------

Here's some advice from dealers and the Federal Trade Commission:

-- Check prices in leading coin publications or in the newspaper.

-- Get advice from local reputable dealers.

-- Ask family members, friends or co-workers for recommendations.

-- Be as knowledgeable as possible when you enter a transaction.

-- Ask about the store's refund and return policy.

-- Call the Better Business Bureau, 206-431-2222, or the Federal Trade Commission, 202-382-4357, to obtain a reliability report and to see if complaints have been filed against the company. The state attorney general's office's consumer number is 800-551-4636.

-- Check with an independent source to make sure a rare coin is worth the price being asked. Some dealers may show consumers an old certificate to lead them into believing the coin is worth more than it is.

-- Watch out for telemarketing and pyramid schemes.

-- Take possession of your precious metals and store them in a secure location.

-- Be wary of promises to buy back your gold for more than you paid.

-- There is no coin guaranteed to appreciate in value. Fraudulent dealers might quote appreciation rates from an index based on the values of 20 rare coins. Dishonest dealers will sell coins worth less, but use the same appreciation scale.