Weather Updates

New CD glitters as gold-linked investment

Updated: May 3, 2013 12:14PM

Originally published: October 10, 2005

Good as gold. It’s an old saying meant to assure you of undeniable quality and perfection. In fact, it’s a term that was once used to define the U.S. currency, when our dollar was freely convertible into gold.

Since gold can neither be created nor destroyed, it has stood the test of centuries as a standard of value. Alchemists have tried in vain to increase the supply. Editors [oops, economists] have tried in vain to deny its worth. But historically, gold has been a secure refuge in times of trouble or political uncertainty.

In our modern and complex society, gold retains much of that historic allure. But there are simply too many currencies and transactions for the world to hide its fears by purchasing gold. Instead, currencies themselves are traded freely -- to the tune of $1.9 trillion of value every day!

Stuck with dollars

But ordinary people in America are basically stuck with dollars. Even if the rest of the world worries about all the dollars the United States is borrowing or creating, Americans live, shop, work and save in dollar terms, except for a few people who hedge that dollar bet.

I’ve written before about Everbank, a bank that issues FDIC-insured certificates of deposit that are denominated in foreign currencies, pay interest rates appropriate to those currencies, and allow you to benefit (or lose) based on changing currency values when the CD matures.

The latest Everbank FDIC-insured CD product is most intriguing. It’s called the MarketSafe Gold Bullion certificate of deposit. It gives investors 100 percent safety of principal, along with a “market upside payment” that is equal to 100 percent of the percent change in the average spot price of gold over the 5-year term of the CD.

Here’s how the Gold Bullion-linked CD works:

*Minimum purchase: $1,500.

*Term: five years.

*Interest rate and annual yield: zero.

*Account fee: zero.

*Total return is linked to the average price of gold

There is no interest paid on the CD because your return is linked to the spot price of gold, which is considered the world’s closing price for gold daily in terms of U.S. dollars, and is established in London at 3 p.m. London time, and is reported daily in the Sun-Times market page. Your “interest” payment at the end of the CD term is actually considered a “market upside payment,” and it is determined by the price of gold on 10 specific, semi-annual dates during the 5-year term of the CD.

At the end of the five-year term, the amount of your market upside payment equals the difference between the average price of gold on those 10 semi-annual pricing dates, compared to the price of gold when you purchased the CD.

These CDs will be issued in series, to simplify the pricing process. The first series will come to market Oct. 25. The base spot price of gold will be established on that date, and the semi-annual spot gold pricing observations will be measured against the initial gold price when the CD is issued.

Then, at maturity, you will receive either a guaranteed 100 percent of your initial deposit (if gold has fallen in price) or 100 percent of the average gain in gold, whichever is greater.

As an example, suppose you purchased a $10,000 Gold Bullion CD that has a base price of $470 an ounce. Then, over the next five years, the price of gold rises and falls, but generally has an upward trend. Those prices are measured at fixed six-month intervals, and let’s say the price of gold averages $618 on those 10 dates. Then at maturity, your $10,000 CD would be worth $13,100.

If the price of gold results in an average of less than $470 an ounce during those 10 observation dates, you’ll get back your original $10,000 investment at maturity in five years.

Special note

Be aware that these CDs are not liquid, and money can only be withdrawn if the owner dies, and in that case there is no guarantee of principal protection. And they are not suited for tax-deferred accounts, such as IRAs.

For more information and a detailed explanation of the risks and guarantees, go to www.

They’ve finally found a way to turn paper dollars into gold. And that’s The Savage Truth.

Terry Savage is a registered investment adviser and the author of the newly published The Savage Number: How Much Money Do You Need To Retire? (256 pages, Wiley, $24.95).

© 2014 Sun-Times Media, LLC. All rights reserved. This material may not be copied or distributed without permission. For more information about reprints and permissions, visit To order a reprint of this article, click here.