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When Gold Prices Drop, Who Benefits?

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When Gold Prices Drop, Who Benefits?

When Gold Prices Drop, Who Benefits?

When Gold Prices Drop, Who Benefits?

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  • <iframe src="https://www.npr.org/player/embed/432542020/432542021" width="100%" height="290" frameborder="0" scrolling="no" title="NPR embedded audio player">
  • Transcript

Gold prices have seen a small increase in the last few days — thanks to jitters over China's currency devaluation. That bump up is minor compared to the overall drop gold has seen since its 2011 peak.

STEVE INSKEEP, HOST:

The price of gold went up briefly last week, thanks to concerns over the devaluation of China's currency. But that bump was minor compared to the overall drop that gold has seen since its peak back in 2011. Back then, gold was trading around $1,900 per ounce. Now it's closer to $1,100. Charles Lane, of our member station WSHU, reports on the winners and losers.

CHARLES LANE, BYLINE: After the recession, gold prices got crazy. Retailer Sammy Yousufleah recalls how it was in his shop, Iceman Jewelers in Harlem.

SAMMY YOUSUFLEAH: We have to keep on changing the price tags on the merchandise and making it higher.

LANE: Back in 2011, no one wanted to buy pricey gold jewelry. They only wanted to sell it. That was hard on retailers who needed customers to shop. Now, with gold prices down, retailers are doing better.

YOUSUFLEAH: It's starting to pick up a little bit because of the gold price coming down, so we can purchase more and more stuff and sell more and more stuff. I think if it's going to go down, it's going to get a lot better.

LANE: Yousufleah says owning a gold shop is dicey. He actually calls gold stock, not a metal, because the price goes up and down all the time. Bill O'Neil is a longtime commodities analyst with Logic Advisors. He says what drove the price of gold so high was the panic after the recession.

BILL O'NEIL: Gold is a psychological commodity as much as anything else. And its overall long-term movements are not really based on the so-called supply-demand equation as much as they are on sentiment.

LANE: When the economy tanked in 2008, a safe place was gold. It's pretty good at retaining its value. The problem is, everyone went to gold - big hedge funds like George Soros and regular Joes buying bullion with their 401ks. That gold fever pushed prices too high. But in the last couple of years, as the recovery took hold, the economy got less risky. Why hold gold when you can expand a business or make other investments?

O'NEIL: Gold is - we always have to remember - a non-interest bearing asset. That's why the specter of the Fed hiking rates would be an additional cost, if you will, to hold gold. If you hold gold, you're not getting any return.

LANE: O'Neil says the big losers in gold's price drop are the goldbugs - a somewhat derisive name for a brand of investor who believes the economy will get much worse, therefore making gold the best way to, as a goldbug would say, feed their family. You can find plenty of goldbugs online, but none of the ones I reached wanted to come on the radio. The other people hurt by falling gold prices are gold miners.

SCOTT RAINE: They were here one day, gone the next. One day there's lots of people looking for houses; next day - wow, they're just gone.

LANE: Scott Raine owns Raine's Market, the grocery store in Eureka, Nev., a no-stoplight town surrounded by a bunch of gold mines. One of those mines shut down last month, and earlier this year, they halted construction on another mine. But Raine, like Eureka, is used to it.

RAINE: It's been a cycle - boom and bust and boom and bust - but the busts have been less dramatic overtime.

LANE: Raine believes the good times will return soon enough, and actually, he's preparing for it. Raine is in the middle of an expansion. So for the next gold rush, he'll be ready. For NPR News, I'm Charles Lane.

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