Rosland Capital News

Golden Rule

L.A. metals brokers mine inflation fears

Published 2/1/2010 | Read more: Richard Clough - Los Angeles Business Journal Staff

Marin Aleksov, a tall, thick Swede with a heavy accent even after 17 years in the states, places a small stack of gold coins on the table.

“That there,” he says, casually, “is worth about $20,000.”

The glittering stack – valuable enough to buy a fully-loaded Honda Civic – comes from a large safe, also containing palladium and platinum coins, in a back room at Rosland Capital, a Santa Monica precious metals dealer that Aleksov founded in 2008.

With gold and other precious metals hitting record highs, Rosland brokers are so busy filling orders they can barely keep up with demand.

Indeed, interest in gold and other precious metals has risen exponentially lately, giving rise to a cottage industry of such dealers. And Los Angeles has become a center for the burgeoning industry, with roughly a dozen local companies, including some of the country’s largest and most prominent gold sellers.

Among them is Lear Capital in West Los Angeles and another Santa Monica company, Goldline International Inc., which the Business Journal ranked last year as the county’s eighth fastest-growing private company after two-year revenue growth of 362 percent. Its sales topped $500 million, making it one of the largest gold companies in the United States. Rosland had revenue of nearly $100 million in 2009, its first full year of existence, Aleksov said.

The explosive growth is being driven in part by the belief of some investors that gold prices will continue to escalate as the huge Wall Street bailout, government stimulus package and record federal budget deficit give rise to hyperinflation.

So far, that hasn’t happened. In fact, there’s been little inflation to speak of. But the fear, stoked partly by advertising on conservative talk shows, has boosted sales considerably.

“As long as inflation is on the horizon, there’s going to be big demand for gold,” Aleksov said. “They’re not doing it to make a million bucks; they’re just doing it to fall back on in case we have another collapse.”

A big part of the demand appears to have been driven by savvy marketing. Rosland, Goldline and other dealers have been flooding the airwaves with radio and television advertisements touting the safety of gold as an investment.

The companies pay a stable of conservative media figures, such as Glenn Beck, G. Gordon Liddy and Laura Ingraham, to push the product on their radio shows.

However, many investment experts believe that with precious metals at record highs, investors may not be wise to load up.

Richard Weiss, chief investment officer for City National Asset Management, said there is “no question” there has been increasing interest in gold among high-net-worth clients, particularly since the financial crisis in late 2008.

However, Weiss doesn’t recommend that precious metals make up more than 10 percent of the average investment portfolio – half the level touted by Rosland, for example. And with signs that the economy is headed for a recovery, he expects gold’s popularity to wane.

“Many investors tend to be backward looking by nature, so if you look at what’s done well over the last year or two, gold is up there,” he said. “As things continue to get better economically and calm down in terms of volatility, the flocking to gold as a safe haven should diminish.”

Getting gold

Presently, though, Rosland’s phones are continuing to ring.

The firm’s advertisements on television and radio – and soon on the Internet – offer curious investors a 1-800 number. A broker will talk the caller through the process, which requires the customer to send a check. Within 10 business days and after the check has cleared, the company will send an insured shipment of gold bullion, palladium bars or other precious metals to the customer.

Gold bars are available, but in the interest of liquidity, many choose 1-ounce coins, which cost more than $1,000 each.

The companies make money on what they call the “spread,” or the difference between the cost to buy metals from wholesalers and the price at which it is sold to customers.

The Treasury Department’s U.S. Mint sells bullion for 2 percent to 3 percent over the price of gold to wholesalers, who will typically mark it up an additional 1 percent. Gold sellers then add 2 percent to 3 percent when selling to consumers.

In the end, Rosland typically sells gold bullion at a price between 4.5 percent and 9 percent over the price of gold. On a recent afternoon, with prices at $1,098 per ounce, Rosland had a 1-ounce gold bullion coin available for $1,158.90.

However, the markup on rare coins – typically hard-to-find currency from the 19th or early 20th century – can be in excess of 30 percent, a point that some take issue with.

“My brokerage firm takes about a 1.5 to 2 percent commission to sell a stock for me – these people take a 30 percent commission,” said Jonathan Taplin, a one-time investment banker and current professor in the USC Annenberg School for Communication and Journalism. “To me, it’s a scam.”

Mark Albarian, chief executive of Goldline, said the markup on rare coins is fair, given how the companies buy the coins from dealers who often mark them up a good 15 percent.

Another issue that has arisen revolves around the business practices of the dealers. A big complaint for some is a delay in receiving their metals or even canceled orders when the dealer cannot secure enough metal.

“In any business, you could have people that don’t do as good a job as others,” Albarian said. “You have to evaluate businesses on a case-by-case basis.”

Many of the major gold sellers, including Goldline, Rosland and Lear Capital, prominently feature the Better Business Bureau logo on their Web sites and tout their high grades. Goldline, which was founded in 1960, currently holds an “A-plus” rating from the bureau, Rosland has an “A” and Lear sports a “B-plus.”

Monex Precious Metals, based in Newport Beach, holds an “F” rating from the Better Business Bureau, but the company said it has been unfairly maligned.

Gregory Walker, the company’s internal counsel, said many of the complaints are simply for late delivery, which is a side effect of an increase in business.

“Delivery may take a little extra time, but we’ve never failed an obligation to deliver to our customers,” he said. “We’ve had relatively few complaints relative to the great volume that we do.”

Customer service

However, the criticism of the industry is in fact one of the factors that drove Aleksov, a former broker at Lear Capital, to start his own company.

Rosland will not accept orders for any metal it does not already possess or is not in the stock of its trusted wholesalers. That way it can maintain a 10-day shipping pledge.

“I felt I could do more when it comes to customer service,” the 38-year-old said. “If there’s any complaint whatsoever, we’re committed 100 percent to take care of it.”

Aleksov struts proudly through the office his company is quickly outgrowing as two dozen brokers chat on the phone with current and potential clients.

Rosland now has 33 employees – up from seven a year ago – and Aleksov has plans to add as many as 15 by April. To accommodate the growth, he hopes to knock down a wall in the office and take over an adjoining space.

Nearby, in a conference room that is anything but gilded, framed pictures are sitting on the floor and leaning against the walls because the company simply has been too busy to finish decorating, he says. “We have good momentum.”

Though some question whether the momentum can be sustained if gold prices begin to fall, Aleksov is not worried.

“A lot of people like to buy when it goes down; a lot of people like to buy when it goes up,” he says.