Capital Gold Group Report: Gold Coins, Bullion Sales Go `Gangbusters' as AIG, Lehman Fall

By Stewart Bailey and Millie Munshi

Sept. 18 (Bloomberg) -- While TV camera crews staked out AIG's Wall Street headquarters following its takeover by the U.S. government, Jules Karp was quietly trading gold coins in ``unbelievable'' numbers from his basement dealership across the street.

Karp, 61, has traded physical gold since 1974. Demand has ``hit a crescendo,'' he said yesterday while an assistant prepared the special packages used to send gold coins to a growing list of customers.

Investors are being driven to the relative safety of gold as global equities plummet following the federal takeover of AIG, the largest U.S. insurer by assets, and the bankruptcy of  Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Amid the fallout yesterday, Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. securities firms, plunged the most ever in New York trading.

``People are panicking right now,'' said Karp, who also sources coins for the clients of Wall Street's largest banks. ``They're afraid for their money.''

 ``People want to protect their wealth and their assets, and gold is the best way for them to do that.''

Gold Skyrockets

The purchases by retail investors mirrored trading yesterday on the New York Mercantile Exchange's Comex division, where gold gained the most in almost nine years. Suppliers of coins and bullion have been struggling to keep pace with the surge in demand from investors.

``We're having a hard time'' making enough coins, Michael White, a spokesman for the U.S. Mint in Washington, said yesterday in an interview. ``There's very high demand across the market for gold.''

Gold futures for December delivery gained $70, or 9 percent, to $850.50 an ounce yesterday on the Comex, the biggest percentage gain for a most-active contract since September 1999.

Hard Assets

Depositors fearing bank collapses are turning cash into hard assets, said Richard Smith, president of a Phoenix-based online bullion dealership. Many don't want their savings in any one bank to exceed the $100,000 threshold guaranteed by the Federal Deposit Insurance Corp., he said.

``I've been selling gold for eight years and I've never seen anything like what I've seen in the last seven business days,'' Smith said yesterday in a telephone interview. ``It's just been gangbusters for us.''

Since 2003, the value of gold purchases jumped almost fourfold, representing the strongest source of growth in demand, the World Gold Council said on its Web site. Investment attracted net inflows of about $15 billion last year, the industry body said.

``There is no doubt that identifiable investment demand in gold has increased considerably in recent years,'' the World Gold Council said.

Record in March

The precious metal reached a record $1,033.90 an ounce in March after the Federal Reserve slashed interest rates, sending the dollar to an all-time low against the euro. Gold subsequently dropped as the dollar strengthened and commodity indexes liquidated their positions. Newmont Chief Executive Officer Richard T. O'Brien said last month the price will probably top its March record in the next year.

``You don't want to go to bed on Friday evening and come back on Monday and have your investments worth zero.'

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