Safe money to seek gold, writer says
By Thom Calandra, FT MarketWatch.com
Last Update: 8:43 AM ET Nov 30, 2000 NewsWatch
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NEW YORK (FTMW) - If the worsening tech tumble moves investors to flee the dollar, gold will become a shelter from the storm, says the editor of the Safe Money Report.
Mind you, Larry Edelson is not saying gold will surge if the Nasdaq Composite continues to hurtle lower. The Florida-based writer, who has been following markets for 23 years, says the gold price first must break above $276 an ounce. It sells for about $267 an ounce in futures markets.
"I expect gold to break out soon. But I wouldn't' be surprised if it fell to $250 an ounce one day and ran to $300 the next," says Edelson.
A sharp drop in the dollar, which is showing signs of weakness against the Swiss franc and even the lowly euro this week, could be the spark.
"If the dollar continues to decline, yes, gold will break out," says Edelson, who sees gold trading in a tight trading range for now. "Gold's fate is much more entwined with the dollar than anything else." Gold prices are largely denominated in dollars. A falling dollar could encourage overseas investors to buy the depressed metal.
Out of tech, into gold
Gold will benefit from the slide in technology stocks, "but when people least expect it," says Edelson, whose reports are found at www.safemoneyreport.com.
Edelson bills himself as a bullion veteran. In the early 1980s, he says he became the largest gold arbitrage trader in the world by trading an average of $175 million worth of bullion each day. He started International Commodity Services, a brokerage that operated from Germany and Japan.
His reasoning on the dollar is simple. Several weeks ago, the tech turmoil sent investors into the dollar. Bond prices benefited. That is changing.
The slowing U.S. economy is "a bad omen for the dollar." A runaway trade deficit eventually will weaken the dollar, which trades near 15-year highs against many currencies.
Edelson's killer argument is the tech tumble. Falling tech stocks will force overseas investors to liquidate their positions. That means more pressure on the dollar.
Gold may shine, not silver
Edelson has other views that stir opinions. One is that the coming gold rally won't necessarily benefit silver. "People who say silver is an industrial metal in short supply are missing the point," he says. "Digital cameras are killing silver. Plus, Comex (futures market) stockpiles are just a fraction of the world's silver."
Edelson sees about 500 million ounces of silver in India, about 300 million ounces in Bahrain, Dubai and Thailand and another 500 million ounces in London and Zurich, which are centers for silver storage. Silver sells for about $4.60 an ounce.
Edelson also says not all gold mining companies will benefit from a higher gold price. Companies such as Barrick Gold (ABX: news, msgs) that hedge their production by using derivatives contracts to lock in higher prices ultimately will suffer when gold prices surge. "I wouldn't be surprised to see Barrick and other companies fall in a rally," he says, pointing to Ashanti Goldfields' (ASL: news, msgs) drop last year when gold prices staged a brief rally.
His favorites are companies that do little or no hedging. These include Homestake Mining (HM: news, msgs) , Franco-Nevada, Glamis Gold (GLG: news, msgs) and Placer Dome (PDG: news, msgs). |
