Analyst has two digits for gold
And they're not nice ones: metal seen plunging
By Thom Calandra, CBS.MarketWatch.com
Last Update: 1:28 PM ET Jan 25, 2002
SAN FRANCISCO (CBS.MW) -- "Gold in the digital age -- two digits!"
That's how Andy Smith, the veteran Mitsui Global Precious Metals analyst,
forecasts gold's price in the next five to 10 years: below $100. Smith's latest
comments are noteworthy. He drew attention last year as a longtime bullion bear
who reversed course and predicted a rally for the languishing metal.
Soon after the Sept. 11 terrorist attacks, when gold flirted briefly with $300
an ounce, Smith placed a $340 price target on the metal. Based in London, he
said at the time, "Gold is clearly on death's door with the lack of interest,
but these are not normal times."
Gold never hit $340, but Smith's comments and published research, sent to
Mitsui's institutional clients, turned heads in the gold trade. He had been
mostly negative on gold's prospects for 14 years.
If ever there was a commodities analyst who came close to the superstar status
of an Abby Joseph Cohen or a Peter Lynch, it is Smith. Over the years, Smith's
coverage of precious metals, from silver and gold to platinum and palladium,
has commanded grudging respect from producers and steady interest from
investors.
Yet Smith says he was surprised this week when a small comment he made in The
New York Times, that gold is "yesterday's money," drew a slew of e-mail and
other comments from gold's tightly knit global band of believers.
"One of the more worrying aspects of my change for 2002 is what a stir it
caused -- is there so little going on?" he told me from London Friday morning.
"I hoped I was meticulous in arguing the reasons for this call -- but
apparently to be a bull is to be a fundamentalist, a zealot. If I didn't know
before, with 14 years observing, I know now that the distribution of opinion in
gold is unique: a barbell with only the extremes occupied and not much in the
middle."
Smith reasons gold prices may head higher in coming months as hedge funds and
other daring investors seek alternatives to the stock and bond markets. As
reported here, gold is sparking interest from Japanese consumers afraid to sink
their money into banks, which will see reduced deposit guarantees starting this
spring. Investment demand for gold in Japan rose 54 percent in the December
quarter, the World Gold Council says.
Smith sees a range of $265 to $355 for an ounce of gold this year, with his
2002 target at $315, or 12 percent higher than current levels. It is his
five-year to 10-year view of the metal's diminishing value in an electronic
world that he admits has rankled the gold industry.
Smith's course reversal comes as gold-mining stocks enjoy gains that appear to
lack support from the metal itself. Even with the price of gold, at $279 an
ounce, close to a 20-year low, gold mining shares are among the leading stock
market performers in Australia and Canada. Gold-oriented mutual funds have been
in the black in the United States for a year now, unlike most other domestic
funds.
The believers still believe. Some say gold needs skeptical analysts such as
Smith before it can shake its 20-year slumber and regain its place as an
alternative to the dollar, or the stock market.
John Hathaway, manager of The Tocqueville Gold Fund, argues a weakening of the
world's dollar-based financial system will boost gold to levels never seen
before. "The price of gold will rise as the dollar-based system of credit and
commerce falters under an overload of bad debt, weakening financial
institutions, and a stagnant economy," Hathaway says. "The end of the Nasdaq
mania marked the beginning of this process. The Enron bankruptcy, de-facto
default on sovereign debt by Argentina and a looming financial crisis in Japan
are random but high-profile reminders of a deteriorating global credit
environment."
Hathaway sees the gold price surpassing $1,000 an ounce in coming years. His
comments are found in his just-published The $28 million gold fund Hathaway
manages has risen 10 percent in this week's first three weeks. It trades under
the ticker TGLDX (TGLDX). Stillwater Mining (SWC), Meridian Gold (MDG) and
Placer Dome Gold (PDG) are among the fund's largest holdings.
For his part, Smith acknowledges he has yet to state his reasoning for sub-$100
gold in a research report. But it's coming. In 1997, for instance, Smith
compared gold's long-term prospects with those of silver, a more industrial
metal that has all but disappeared as an investment choice.
"I rehearsed this long view in 1997, likening - in detail - gold's demise to
that of silver in late 1800s as central banks grew out of it faster than India
could grow into it," Smith told me. "In many respects gold's problem is worse.
Its price fate, on this analogy, is somewhere below $100. At that price, gold
would 'catch down' with the performance of silver."
Spot gold prices Friday afternoon rose $1.15 to $279.65 an ounce in New York
trading.
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Thom Calandra is editor-in-chief of CBS MarketWatch. He has pledged to dye his
hair gold when spot gold's price exceeds $300 for a full week. |
