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Gold Drives Spectrum’s Sales, Profit Another Matter

• Headquarters: 18061 Fitch, Irvine<br>• Employees: 143; 100 in OC<br>• Business: Trader of precious metals, coins, other collectibles <br>• Market value as of April 1: $98 million<br>• Revenue for 12 months through Dec. 31: $6.5 billion, up 33%<br>• Net income for 12 months through Dec. 31: $2.7 million loss, versus profit of $98 million

Year in Review

Record gold prices helped drive a sales surge at Spectrum Group International in 2010.

The company, which primarily sells and trades gold and other precious metals, saw revenue of $6.5 billion for the 12 months through December, up 31% from a year earlier.

More than 95% of Spectrum’s revenue is from gold, which it buys from governments including those of the U.S., Canada, Australia, South Africa, China and Austria.

It then sells the gold to banks, coin dealers, jewelers, collectors, investors, refiners and manufacturers.

Gold, which has seen its price jump more than 25% in the past 12 months, hit a high in last week of about $1,500 an ounce.

The fighting in Libya, fallout from Japan’s earthquake and tsunami and U.S. and European debt concerns have led investors to the precious metal and helped sustain a run-up that has defied predictions of a bust.

Silver has been on a run as well, more than doubling its price in the past year to about $40 an ounce.

Profits are more elusive for Spectrum.

The company nets pennies on the dollar on its trades. In 2010, the company posted a $2.7 million loss, due in part to higher costs of precious metals, which crimp profits.

A year earlier, Spectrum’s trading business benefited from a number of factors, including volatility in the market and increased global demand.

What’s Ahead

Gold prices could go higher this year as some investors hedge against inflation and turn away from Treasury bonds amid rising concerns about U.S. debt.

That stands to drive up Spectrum’s revenue, but make profits challenging.

Late last year, Spectrum subsidiary Bowers and Merena Auctions, an auctioneer of rare coins and currency, combined with New York-based Stack’s, the country’s oldest rare coin retail and auction company. The new company is known as Stack’s-Bowers Numismatics.

The deal creates value for shareholders while expanding the company’s core trading and collectibles businesses, according to Spectrum Chief Executive Greg Roberts.

In January, Spectrum sold its arms and armor auction business, Greg Martin Auctions, back to Greg Martin and his partners.

Wall Street’s Take

Spectrum’s shares have been on a run lately, up some 60% in the past 12 months, reflecting gold’s surge.

Political unrest in the Mideast coupled with European and U.S. debt issues have pushed more investors toward gold, a speculative commodity that started its marathon run before the recently ended recession.

Given Spectrum’s revenue, the company has a disproportionately small market value of about $100 million, reflecting its slim profits and past troubles.

The stock still is recovering from a

2006 collapse after Spectrum was implicated in an alleged Ponzi scheme involving stamps in Spain, where majority owner Afinsa Bienes Tangibles SA is based.

Spectrum settled a Securities and Exchange Commission suit that alleged fraud in the stamp scheme without admitting or denying guilt.

The company’s shares once traded on Nasdaq but now are on the low-profile Pink Sheets.

No analysts cover the company, which presents some challenges in credibility and investor awareness.

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