Ike, for your interest.
>June 1, 2000
Gold. Fold?
Some gold bugs will have nothing to do with it for the time being. Others expect it to break out -- as soon as a currency crisis erupts. Others suspect a conspiracy among central bankers to hold gold's price low, thus keeping commodities indexes low.
Some, who are not gold bugs, but occasionally use it to hedge their portfolios, are holding some gold stocks now. Others aren't.
Gold's picture is decidedly blah. It spiked up above $300 early in the year, but now can't seem to get much above $275 an ounce. In yesterday's futures markets, gold for June delivery closed at $274.80, down 70 cents.
According to the World Gold Council, world gold demand in the first quarter was up an uninspiring 1 percent, led by jewelry demand, up 7 percent from a year ago.
But investment demand was down 29 percent, with the United States accounting for almost all of that. People had bought gold coins a year ago because of Y2K fears. When they dissipated, gold dropped.
In Japan, gold demand plunged 39 percent during the first quarter.
Then there are the central bank dumpings: The United Kingdom jettisoned 125 tons in 1999-2000 and will drop an additional 150 tons in 2000-2001. Austria, which has sold 30 tons, will sell an additional 60 by 2004. Canada intends to dump all its gold eventually.
Overall, International Monetary Fund data show that nations sold 183.2 tons of gold from October of last year to January of this year.
With this much against you, how do you crawl out of the gutter? Richard Russell of La Jolla's Dow Theory Letters believes that gold is the world's only true money, but it simply isn't going anywhere. It's trading below its 144-day moving average: "The heart of the problem is that the market really does not see major inflation ahead," Russell says.
But James Dines of Belvedere's Dines Letter has hope. For some time, he has been saying that a world currency crisis would break out: Now it's happening, he says.
"The euro has crashed 24 percent. There are big drops in currencies -- South Africa, Indonesia -- and the British pound is down," Dines says. "There are currency upheavals all over the world."
But, Dines adds, "Normally, people would go into gold, but they can't. The Swiss are dumping it. There is no way gold can go up in a climate like this. It would only happen if there were some kind of a currency panic."
Right now, the crisis is "bubbling under the surface," waiting to erupt, he says. Also, inflation -- as seen in the rapid increase in money creation around the world -- is ready to rear its ugly head in a visible way.
Is there a conspiracy against gold? Dines doesn't believe it.
"The morons running the central banks -- and I want you to use that word 'morons' -- cannot connect the dots. They can't figure out why the euro is crashing. It's crashing because it's not backed by gold. They sell gold and the euro crashes, and they can't figure out why."
So what is he telling his subscribers? There are several good gold stocks, and Newmont Mining is the best. He also has Barrick, Placer Dome and Franco-Nevada on his buy list.
He likes platinum and palladium, and recommends Stillwater Mining.
Russell would hold some gold coins as an insurance policy, but unlike Dines, he thinks a currency crisis is not on the horizon.
Kennedy Gammage of La Jolla's Richland Report says that the XAU Index, which monitors gold and silver stocks, is "lackluster, uninspiring." Until the trendlines head definitively northward, "our advice is to stay away," he says, although he likes Central Fund of Canada and would hold Franco-Nevada.
E. James Welsh of Carlsbad's Welsh Money Management uses gold stocks as an occasional hedge. He thinks inflation is on the rise, and gold will rise. Once it hits $284 an ounce, its technical picture will improve; a move above $292 will suggest that a bottom is in place.
He has close to 24 percent of his portfolio in gold funds. Yesterday, the XAU closed at $56.28, down $1.41. He would sell half of his gold funds if the XAU falls to $53 or rises to $82.
Don Bauder's email address is don.bauder@uniontrib.com |
