Glint From the U.S. Mint

Uncle Sam is finding out just how hard it is to time the commodities market.

The United States Mint has begun selling 24-karat-gold coins to investors and collectors for the first time in history. The American Buffalo coin will now compete with other "pure" gold coins such as the Canadian Maple Leaf, the Chinese Panda, and the Australian Kangaroo Nugget for investor dollars.

Globally, interest in physical gold has soared in recent years thanks to a tremendous price run-up that pushed gold above $700 an ounce in May. But the U.S. Mint's timing seems to be slightly off--several weeks off, to be exact.

After setting a quarter-century high in May, gold tumbled to around well under $600 an ounce in recent days. "You basically had a 20 percent correction in about a month and a half," says Michael Cuggino, manager of the Permanent Portfolio, a mutual fund that invests in a variety of assets including gold.

The U.S. Mint isn't the only player a bit late to the gold party. In May, Van Eck Global launched the first U.S. exchange-traded fund composed entirely of gold-mining stocks. The Market Vectors-Gold Miners ETF, which trades on the American Stock Exchange, is down since its launch.

John Markese, president of the American Association of Individual Investors, says he isn't surprised by the introduction of these new vehicles. "Whenever an asset runs up in price, people are going to flood the market with different ways to own it," he says.

Bubbly. Often, he adds, the introduction of such products is itself a sign of a market top. Indeed, many market watchers think the recent euphoria for commodities like gold is reminiscent of the tech bubble in the late 1990s.

To be sure, it's way too soon to tell if gold will melt down as Internet stocks did in 2000. In fact, many gold investors believe that the recent sell-off is simply a short-term correction that may provide investors with a buying opportunity.

"The environment is still very favorable for gold," says Cuggino, whose fund invests around 20 percent of its assets in physical gold. He notes that investor interest in gold tends to go up during periods of rising inflation and a falling U.S. dollar. Both of those trends have already begun to manifest themselves.

But many financial planners say gold is a temperamental asset that does not offer investors consistent returns over time. While gold prices have indeed soared this decade (the average mutual fund that specializes in gold and gold stocks has gained more than 30 percent a year for the past five years), it could just as easily be stagnant for years. Between the mid-1980s and the current decade, gold prices pretty much went nowhere.

Investors who purchase gold today should recognize that they "could be sitting there for a good decade before anything happens to the price," says Jim Shambo, a financial planner in Colorado Springs, Colo. And unlike other major assets like bonds and stocks, he notes, gold does not throw off any interest income or dividends.